Tuesday, October 18, 2011

Naira Gains As Forex Demand Drops

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The impact of the Central Bank of Nigeria’s intervention is still reverberating as the naira appreciated at the bi-weekly auction yesterday to close at N149.95 to the dollar, from N150 at the previous auction.
The CBN met demand, selling $296.91 million. Demand fell by nearly 50 per cent from $591.67 million demanded at the last auction.
The regulator last week put in place measures to reduce demand for foreign exchange, closing out petroleum importers from the official window and reducing the net open positions banks can hold as reserves to 1 per cent of shareholders funds, from 5 per cent.
For instance, the Central Bank of Nigeria’s circular categorically states that importers’ request for purchase of foreign exchange (forex) by authorised dealers for such transactions shall be made to the apex bank a minimum of 48 hours to the bidding/auction day, failing which the bid shall be considered for the next auction session.
In a bid to stem the high demand for forex, the central bank also said all remittances in respect of dividend, capital and proceeds of investment, proceeds of sale of international air tickets and consultancy services shall be through the autonomous funds, thus giving the official market a breathing space.
This is in addition to raising the benchmark interest rate by 275 basis points to 12 per cent and increasing the cash reserve requirement of banks to 8 per cent from 4 per cent
These measures became inevitable after the naira reached a record low of N167.8 at the interbank and N156.91at the official window.
However, at the interbank market, the naira remained under pressure yesterday, due to uncertainty over the CBN’s posturing to shore up the naira.
It closed at N162.88 while it sold at N164.5 at the parallel market.
Suleiman Ghali, a currency dealer said if the CBN keeps up with its policy, the naira will improve.
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