The Central Bank of Nigeria is at it again!!
A recent article from Reuters, reveals that the Central Bank has now stopped its daily auction of dollars. According to the article, the CBN is stopping the sale of forex in a bid to “conserve its dwindling foreign reserves”. The article quoted the central bank’s financial markets director, Emmanuel Ukeje who said “We don’t sell (dollars) on a daily basis any more. When we do the auction everybody bids,.”
Before now, banks were ‘required to pre-fund bids which were submitted to the central bank on a daily basis for the allocation of dollars’ the article further reveals. An analyst further explained to Nairametrics that the CBN used to sell forex daily to foreign investors and weekly to local buyers but will now henceforth sell weekly to everyone.
The CBN had in a press release last Monday revealed that Nigeria’s forex earnings had declined to about $1billion monthly from $3 billion monthly in 2014. It also explained that whilst inflow had our import bill has risen from N148 billion a month to about N917 billion a month.
Nairametrics sees this latest circular as a yet another move towards price determination allowing the market to be less dependent on the CBN to plug its supply needs. This could also be another step towards increasing liquidity and reducing the reliance on the CBN as its limited role and the loosening of restrictions placed on deposits and withdrawals could eventually open the doors for more liquidity in the system thus bringing down the disparity between the parallel and official rate.
Cynics on the other hand will see the latest move as another sign that the present CBN Governor cannot be trusted to midwife Nigeria out of its currency crisis. They are also concerned that the further the CBN delays devaluing the naira the wider the spread will become. They believe, if the CBN devalues today to N240 and pumps in 100 million dollars into the market the black market rate might crash to as low as N260. They also note that this could have other implications such as increasing the subsidy the government pays. The government has also been criticized for worsening the economic situation in the country and could have devalued the naira and removed subsidy as soon as it took power, two moves that may have limited the deteriorating state of the economy.