CBN injected $29.72bn into forex market in nine months

The Central Bank of Nigeria (CBN) sold a total of $29.72 billion to authorised dealers between January and September 2019.

The figure is $4.02 billion more than the $25.7 billion total forex sales made by the apex bank for the whole of 2018.

According to the CBN’s economic report for the third quarter of this year released at the weekend, there was a considerable increase in foreign exchange sales to the Investors and Exporters’ (I&E) forex window, swaps transactions and wholesale forwards in Q3’19.

The report stated: “A total of $10.11 billion was sold by the CBN to authorised dealers in the third quarter of 2019. This represented 37.1 per cent increase, compared with the level in the second quarter of 2019. The development, relative to the preceding quarter, reflected, mainly, the significant rise in foreign exchange sales to the I&E window, swaps transactions and wholesale forwards in the review quarter.

“Of the total, foreign exchange sales to the I&E window, swaps transaction, wholesale forwards intervention, SME intervention, sales to BDCs, interbank sales and SMIS intervention, rose above their levels in the preceding quarter by 2,345.14 per cent, 36.1 per cent, 24.3 per cent, 12.5 per cent, 9.3 per cent, 6.9 per cent and 0.7 per cent, respectively, to $2.02 billion, $0.47 billion, $1.50 billion, $0.43 billion, $3.54 billion, $0.33 billion and $1.84 billion, respectively,” it added.

This means that it sold a total of $29.72 billion for the first nine months of this year.

In its Annual Activity report for 2018, the CBN had stated that total forex sales last year was $25.7 billion, comprising $14.6 billion as spot and $11.1 billion as forward transactions.

According to the report, “In 2018, the CBN maintained its direct intervention in the inter-bank foreign exchange market to cushion demand pressure and ensure exchange rate stability. Consequently, total spot sale was $25,676.77 million, while forwards sales amounted to $11,054.52 million.

“These spot sales comprised $3,453.09 million at the inter-bank, $1,581.40 million for invisibles, $1,315.50 million for SMEs and $8,272.26 million at the Investors’ and Exporters’ (I & E). On the other hand, the Bank purchased $7,802.77 million at the inter-bank market. Thus, net sales by the Bank amounted to $17,874 million.”

Analysts said that the CBN’s frequent interventions in the forex market have been responsible for the naira’s stability in recent years, adding that the apex bank increased its forex sales in Q3’19 following lower inflows at the I&E window which made the regulator to step up its intervention to ensure exchange rate stability.

In fact, as the Q3’19 economic report put it: “The CBN sustained its interventions at both the Inter-bank and the BDC segments of the foreign exchange market in the review quarter. Consequently, average exchange rate of the naira vis-à-vis the US dollar at the Inter-bank segment, appreciated by 0.01 per cent to N306.93/US$, above the level in the preceding quarter. It, however, depreciated by 0.3 per cent, compared with the level recorded in the corresponding period of 2018.

“Conversely, at the BDC segment, the average exchange rate appreciated by 0.1 per cent and 0.02 per cent to N359.14/US$, relative to the level in the preceding quarter and the corresponding period of 2018, respectively. At N362.20/US$, the average exchange rate at the I&E window depreciated by 0.4 per cent, relative to the level in the preceding quarter, but appreciated by 0.1 per cent, compared with the level in the corresponding period of 2018.”

However, the CBN’s frequent interventions in the forex market have taken their toll on the nation’s external reserves. For instance, the Q3’19 economic report states that: “Gross external reserves were $40.90 billion as at September 25, 2019. This indicated a decrease of 8.6 per cent, compared with the level in the second quarter of 2019.”

New Telegraph reported last week that the external reserves have been on a downward trend in recent months, dropping to $40.50 billion as at October 30, 2019 from $45 billion on July 25, 2019.

Specifically, the reserves fell by $1.26 billion from $41.76 billion in October 2 to $40.5 billion as of October 30.

In a recent report, Coronation Research predicted that unless there is a significant improvement in capital inflows, especially Foreign Portfolio Investment (FPI), Nigeria’s foreign exchange reserves may fall to $38 billion by the end of this year.

The firm stated that: “The CBN FX reserves are currently $40.7 billion (a reported 30-day moving average). Given the recent decline in the reserves, a reserve level around the $38 billion mark is not far-fetched, in our view, unless FPI picks up.”


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