FOREX: CBN defends naira with $21.18bn in 11 months

CBN moves to harmonise exchange rates

FOREX: CBN defends naira with $21.18bn in 11 months


 

 

In bid to meet demands and further strengthen naira, the local currency, the Central Bank of Nigeria (CBN) sold foreign exchange amounting to $21.18billion to authorised dealers between January and November last year, findings have shown.

The figure is $13.40 billion less than the $34.58 billion that the regulator sold to authorised dealers in the corresponding period of the previous year.

According to the November 2020 monthly economic report it released a few days ago, the CBN sold forex amounting to $1.27 billion to authorised dealers in November 2020, which is a decline of 63.1 per cent($2.07billion) compared with what it sold in the same period of the preceding month.

Analysis of the apex bank’s forex sales data showing that it sold total forex of $19.91billion to authorised dealers between January and October last year, it means that the regulator’s forex sales hit $21.18 billion in the first eleven months of 2020, representing a decline of 38.8 per cent when compared with the total sales of $34.58 billion for the corresponding period of the previous year.

Further analysis of the CBN’s forex data shows that with the exception of Q1’20, its forex sales to authorised dealers last year was below amounts sold for similar periods in 2019.

For instance, the regulator states in its November 2020 monthly economic report that “foreign exchange sales to authorised dealers by the bank was $1.27 billion in November 2020, a decrease of 18.5 per cent and 63.1 per cent below the levels in the preceding month and corresponding month of 2019, respectively.

“A disaggregated analysis showed that foreign exchange sales to Bureaux De Change (BDC) operators, swaps transactions, SMIS and SME interventions declined by 0.7 per cent, 10.9 per cent, 55.9 per cent and 8.8 per cent below the levels in the preceding month to $0.42 billion, $0.11 billion, $0.28 billion and $0.09 billion, respectively.

“However, sales at the interbank and intervention at the Investors and Exporters’ (I&E) window rose by 86.3 per cent and 29.7 per cent, respectively, over the levels in the preceding month.”

Similarly, in its October 2020 monthly economic report, the CBN disclosed that “provisional data showed that in October 2020, total foreign exchange sales to authorised dealers by the bank amounted to $1.56 billion; an increase of 17.6 per cent from the level in the preceding month, but a decline of 50.8 per cent below the level in the corresponding month of 2019.

The development, relative to the preceding month, was attributed, largely, to increased matured swap transactions, which rose to $0.12 billion from $0.01 billion in September 2020.

Similarly, foreign exchange cash sales to Secondary Market Intervention Scheme (SMIS) and Bureaux De Change (BDC) rose by 18.7 per cent and 23.9 per cent respectively to $0.65 billion and $0.42 billion in the review period, respectively.

A further disaggregation showed that sales to interbank, Investors and Exporters’ (I &E) and SME respectively fell by 37.6 per cent, 10.2 per cent and 11.8 per cent to $0.23 billion, $0.20 billion and $0.08 billion, relative to their levels in the preceding month.

Analysts attribute the decline in forex sales by the CBN last year, compared with 2019’s, to the significant drop in the price of oil-the commodity that accounts for about 90 per cent of the country’s export earnings- as well as the impact of the coronavirus (Covid-19) crisis, which led to a decline in external reserves, thus limiting the amount the regulator could inject into the forex market to defend the naira.

The CBN said in its 2020 Half Year Economic Report that “the precautious level of economic activities hampered foreign exchange supply to authorised dealers.

Total foreign exchange supply to authorised dealers by the Bank stood at $13.98 billion, indicating a decline of 15.3 per cent each, below the levels in the preceding half year and the corresponding half of 2019, respectively.

“Of the total, inter-bank sales amounted to $0.38 billion, compared with $0.62 billion and $0.81 billion in the preceding six months and the corresponding period of 2019, respectively.

“At the Bureaux De Change (BDC) segment, total sales declined to $3.63 billion in the review period, compared with $6.75 billion and $6.86 billion in the preceding half year and corresponding period of 2019, respectively, due to the temporary suspension of sales to the segment as international travels were grounded.

“Foreign exchange sales under the Secondary Market Intervention Scheme (SMIS) and to Small and Medium Enterprises (SME) declined by 7.6 per cent and 31.0 per cent to $3.16 billion and $0.57 billion, respectively, from their levels in the preceding half year.

“Sales to the Investors and Exporters’ (I&E) window rose by 27.6 per cent to $6.24 billion, compared with the levels in the preceding six months and the corresponding period of 2019, respectively.”

Given the downward trend in CBN’s forex sales to authorised dealers for a large part of last year, analysts are predicting that total forex sales at the end of 2020 will be less than the last few years.

In its “Annual Activity Report 2019,” the apex bank had disclosed that it made total foreign exchange sales of $23.9 billion in 2019, which was $1.8 billion less than the amount ($25.7 billion) it sold in the previous year.