The Central Bank of Nigeria has amended some key provisions of the investor window. In a circular dated June 5, 2017, titled Further Liberalization of the Interbank- Foreign Exchange (FX) Market, the CBN moved a step closer towards a more liquid market.
Nitty gritty of the circular
On Spreads
Interbank transactions shall now be subject to a maximum spread of N1. Before now, banks had no limit to its maximum spread.
Likely effect
This could help narrow the rate disparity that currently exist in the interbank market. Currently, rates can range from anywhere between N380 and N400 on the investor window.
On defeasing FX positions
Authorised dealers can defease their excess foreign currency trading positions to fellow authorised dealers without seeking prior approval from the CBN
Likely effect
Dealers with excess FX positions that they cannot immediately defray can pass it on to other dealers stimulating liquidity within the FX market.
Report details of transactions
Authorised dealers must now report details of transactions to the CBN by 4pm daily
Likely effect
More transparency towards pricing and liquidity status of the investor window.
What’s the end game
Most analysts we spoke to still believe that the CBN is headed in one direction, albeit cautiously. It will eventually move to a more market determined exchange rate and will eventually achieve a rate convergence.
For now, it needs to ensure that liquidity in the market continues to flow while pricing is determined with minimalist manipulations. It also continues to sell FX across other windows as a way to ensure stability and insulate the FX window against the smaller but more infectious parallel market.
Stay pumping
On Monday, the Bank injected another $190 million- $100 million for wholesale forwards, $50 million in its MSME window and $40 million for business and travel allowances. This intervention brings the amount of CBN intervention to around $5 billion in a little less than 5 months.
