CBN’s Forex Intervention Rises 118% to $48 Billion
The Central Bank of Nigeria (CBN), cash injection into the nation’s foreign exchange market rose by 118 per cent to about $48 billion in 2018 from $22 billion in 2017.
The cash injections were dominated by the settlement of matured forward contracts estimated at $16 billion in 2018.
The sharp increase was triggered by the decision of the apex bank to defend the naira in the face of increased foreign exchange outflows due to foreign portfolio investors (FPIs) exiting the nation’s financial markets to take advantage of higher interest rate regime in the United States, following interest rate hike by the Federal Reserve.
Also during the year, the CBN increased weekly dollar sales to bureaux de changes, BDCs, by 75 per cent to $75,000 per BDC from $40,000 per BDC, in a bid to address increased demand for dollars in the retail segment.
Notwithstanding, the upsurge in intervention, the naira depreciated in the Investors and Exporters (I&E) window by N3.67 or 1.0 per cent to N364 per dollar at the close of 2018 from N360.33 per dollar at the close of 2017. Also reflecting the impact of the increased intervention, the nation’s external reserve dropped to $43.12 billion at the close of 2018 from $47.79 billion on July 5, 2018.
Analysts at Zedcrest Capital Limited have projected further increase in CBN dollar cash injection in 2019, as well as marginal depreciation of the naira, saying “In the wake of significant forex outflows by FPIs in Q3’18 Q4’18, the CBN aggressively increased its rate of forex interventions across all market segments, with the most increase of 69 per cent recorded in I&E window in Q3 18.
“Given our expectations for slower FPI inflows and examination of forward traded rates in the Over-The-Counters (OTC) futures market, we anticipate a marginal depreciation of the naira in H2’ 19.
“We, however, expect the CBN to sustain its aggressive interventions across all market segments to ensure stability of the naira. We expect the naira to gain marginally in H2’19, given expectations for renewed FPI inflows from receding political risks post the general elections.”
Meanwhile, the apex bank, last Friday, made its first intervention in the inter-bank segment of the forex market for 2019 with $210 million injected into the wholesale segment and other sectors of the market.
The Director, Corporate Communications, CBN, Mr. Isaac Okorafor, said that customers in the wholesale segment of the market received $100 million with the Small and Medium Enterprises (SMEs) and invisibles segments each getting $55 million to meet the needs of customers.
He added that the CBN continued from where it stopped in 2018 in order to maintain the stability being enjoyed in the market. While noting that the apex bank had made effort in keeping the exchange rates at the current levels, Okorafor said the current capital flow reversals from the emerging markets were expected to bring out pressures on the market rates.
He, however, assured that, in spite of the anticipated pressures, coupled with the forthcoming elections, the CBN was committed to maintaining the current exchange rate policy, given the level of reserves.
The naira last week depreciated by 85 kobo in the I&E window even as the volume of dollars traded fell by 22 per cent.
Data obtained from FMDQ revealed that the indicative exchange rate for the window rose to N365.35 per dollar last week from N364.5 per dollar the previous week. The depreciation was prompted by 22 per cent decline in volume of dollars traded (turnover) which dropped to $549.9 million from $709.5 million in the previous week.