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Economy

CBN Stops Sale of FX to BDCs, Policy Parameters Remain Constant

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In a move that took local Nigerian financial markets by surprise, the Central Bank of Nigeria (CBN) embarked on sweeping measures to clean the rot that had allegedly occurred in the trading of foreign exchange at Bureau de Changes (BDCs). The CBN alleged that the BDCs had abused the regular sales of foreign exchange to them by selling FX at rates above the agreed guidelines, thereby engaging in what the regulator called ‘rent seeking’.

At a press briefing held onTuesday,, the CBN Governor stated that the CBN would also no longer approve BDC licence applications. The decision reached by the MPC was premised on the committee’s observation that the BDCs had, contrary to their mandate, become wholesale dealers conducting large FX transactions above their sales limit of $5000 per person and instead concluded single transactions worth millions of dollars.

Godwin Emefiele, noted that there had been an astronomical rise in operators who now number 5,689 as of June 2021 a significant rise from 74 dealers in 2005. He further noted that the regulator received an average BDC application of 500 monthly. The CBN boss said that BDC operators disregarded prevailing rates and spurred the gradual dollarization of the domestic economy.

According to the Governor, Before the Bank’s decision, the CBN sold $20,000 weekly to over 5,000 BDCs amounting to over US$100m weekly and US$1.57bn annually. In a bid to reduce the pressure on the country’s FX,  the CBN Governor directed all commercial banks to set up FX Teller points in all branches to ensure the direct sale of FX to buyers.

Rethinking Multiple Exchange Rates

Past governments have sought to respond to Nigeria’s balance of payments challenge by creating a legal parallel (or dual) foreign exchange market to avoid the short-term effects of a depreciation of the Naira on domestic prices while retaining some degree of control over capital outflows and international reserves.

BDC operators constitute a parallel market. Over the last few months, the BDC rates have hovered between $472.4 and $500 in January, while the official rate has surged between $381 and $411.27 implying a premium gap of 28% (see chart 1 below).

 

Chart 1: Comparative Average Movement of I&E FX and BDC Rates 2021

Source: CBN, Proshare Research

Analysts believe that this is unsustainably high and capable of disincentivizing foreign investment, underscoring the CBN’s move to stop the weekly allocation of FX to BDCs.

Policy Levers are Unchanged

Meanwhile, the MPC decided to again hold policy parameters constant considering the recent inflation figure (17.75%) – the third straight fall- the MPC expressed optimism that the inflation rate would continue downward trend but since it remains in the upper double-digits the banking sector regulator decided to hold policy rates fixed at the previous rates:

  • Monetary Policy Rate (MPR) – 11.50%
  • Asymmetric corridor around the MPR – +100/-700bps
  • Cash Reserve Ratio – 27.50%
  • Liquidity Ratio – 30.00%

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Economy

Currency Speculators in Trouble as Naira’s Resurgence Continues

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Currency speculators are in trouble as the Naira has continued to gather strength in the market in recent times.

It would be recalled that the US Dollar exchanged for nearly N2,000 in February this year, same with the Pounds, Euro and other foreign currencies.

However, the Naira has continued to gather strength and is currently hovering around N1,480 and N1,520 for a Dollar.

To that end, the Presidency has warned forex speculators to discard their Dollars, saying that the Naira will soon appreciate more and may depreciate their savings.

President Bola Tinubu’s Special Adviser on Information and Strategy, Bayo Onanuga, made this call in a statement via his X handle on Thursday.

The presidential aide urged speculators to quickly dump their dollars to avoid “tears.”

He stated, “With backlog FX settled, Naira is set to appreciate further, faster. Currency speculators should quickly dump their stock of dollars to avoid sorrows and tears.”

Onanuga was reacting to the Central Bank of Nigeria, CBN, disclosure that it had cleared the $7 billion foreign exchange backlog inherited by Governor Yemi Cardoso.

Yemi Cardoso, CBN Governor

In a statement on Wednesday, CBN’s Acting Director of Corporate Communications, Mrs Hakama Sidi Ali, confirmed the settlement of all valid FX backlog claims.

Ali said the apex bank employed Deloitte Consulting, an independent auditing firm, to meticulously assess the transactions, ensuring that only legitimate claims were honoured.

“Any invalid transactions were referred to the relevant authorities for further investigation,” she stated.

The CBN’s commitment to tackling the FX backlog appears to be paying off, with the external reserves seeing a significant rise, reaching $34.11 billion as of March 7, 2024, the highest level in eight months.

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Economy

CBN Uncovers $2.4b Invalid FOREX Claims

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CBN Governor Yemi Cardoso

Central Bank of Nigeria (CBN) Governor Yemi Cardoso said the apex bank has discovered $2.4 billion invalid forex outstanding claims pressuring the naira and causing anxiety in the currency market.

Cardoso disclosed this in an interview with Arise Television on Monday.

According to Cardoso, this was uncovered during an audit by the consultant the CBN hired, which exposed a number of dubious transactions.

The CBN Governor stated that the apex bank commissioned Deloitte to look into the FX allegations to provide a true picture of the situation.

Cardoso said, according to the Deloitte assessment, up to $2.4 billion of the backlog consists of fictitious claims, with claimants in certain cases being unable to provide import documentation.

“We had had reasons to believe we needed to take a harder look at these obligations. So we contracted Deloitte management consultants to do a forensics of all these obligations and to actually tell us what was valid and what was not,” Mr Cardoso said.

“The result that came out of this was startling in a great respect. It was startling. We discovered that of the roughly $7 billion, about $2.4 billion had issues, which we believe had no business being there and the infractions on that ranged from so many things, for example not having valid import documents and in some cases entities that do not exist,” he said.

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Economy

We are Determined to Stabilise Forex and Boost Economic Growth. -FG

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By Christopher Sunday

Minister of Information and National Orientation, Mohammed Idris, has said the Tinubu administration is committed to implementing macroeconomic reforms.
aimed at curbing inflation, easing the cost of living, and stabilising the foreign exchange as part of the broader objective of boosting economic growth.

The Minister stated this on Saturday in Minna, Niger State, at the 2024 Press Week of the Niger State Chapter of the Nigeria Union of Journalists (NUJ).

Represented by the Director General of the Voice of Nigeria, Mallam Jibrin Baba Ndace, the Minister said the year 2024 holds a lot of prospects for Nigerians as some of the promising initiatives of the administration begin to bear fruit.

“Permit me, distinguished invited guests, as chief spokesperson of the Federal
Government of Nigeria, to use this hallowed platform to tell Nigerians, at this early and auspicious time of the year, that 2024 would be a great year for Nigeria as thepolicies of President Bola Ahmed Tinubu under the Renewed Hope Agenda takefirmer roots for the growth of our nation’s economic development, our invaluablehuman assets, and national security.

“The Tinubu administration will continue to implement macroeconomic reforms.
to achieve broad economic objectives of sustained economic growth aimed at
bringing down inflation, easing the cost of living, and stabilising foreign exchange
and job creation, among others,” he said.

Idris said, against the backdrop of the withdrawal of fuel subsidies, liberalising the foreign exchange regime, and the fight against corruption, the Tinubu government is showing fidelity to the rule of law and the independence of institutions, as demonstrated in the recent judgements of the courts.

The Minister explained that the recent Federal Government decision to relocate certain departments of the Central Bank of Nigeria (CBN) and the headquarters of the Federal Airports Authority of Nigeria (FAAN) to Lagos is part of a broader strategy to enhance operational efficiency, streamline processes, ensure a responsive financial system for Nigeria, and cut operations costs. He emphasised that the government’s directive aligns with global best practices and has no political motivation, however wrongly propagated.

The minister assured that no policy of the present administration would put any part of the country in a disadvantageous position. “President Bola Ahmed Tinubu’s commitment to fairness and equitable development, as outlined in his oath of office, ensures that no policy under his administration will disadvantage any region. His dedication to fostering national unity and inclusivity is reflected in policies guided by principles of fairness and equality,” he said.

The Minister, who also used the occasion to enlist the support of the media in the fight against fake news, said the hydra-headed menace of fake news is ravaging the media space. “My dear colleagues, we need to rise against the elements of fake news that are deliberately designed to misinform Nigerians,” he said.

Idris also announced to the gathering that the Federal Government would soon unveil comprehensive details of the National Values Charter, which are aimed at inculcating values in the citizenry.

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