CBN Governor Lamido Sanusi Lamido
By Obinna Chima
In line with its avowed desire to stabilise the forex market, the Central Bank of Nigeria (CBN) at the weekend, adopted fresh measures to defend the naira just as it increased the amount of forex banks could hold, relative to their shareholders' funds.
Under the new policy, the CBN in a circular, signed by its Director, Trade and Exchange Department, Mr. Batari Musa, said effective Monday, the forex net open position (NOP) limit has been raised.
This means that, effective Monday, the amount of forex, relative to shareholders' funds, banks could hold has been raised to three per cent, from the one per cent it was reduced to, at its recent Monetary Policy Committee (MPC) meeting.
The shareholders' funds of a bank or any company are its capital in addition to reserves.
Specifically, the CBN said in addition to its intervention at the Wholesale Dutch Auction System (WDAS) (both in the spot and forward auction), it shall periodically intervene in the interbank market.
The CBN disclosed this in a circular with reference number: “TED/FEM/FPC/GEN/01/025,” addressed to all authorised dealers, a copy of which was obtained on its website at the weekend.
The circular titled: “Guidelines on the Operation of CBN Interventions in the Interbank through the Two-Way Quotes System,” also signed by Musa, was dated October 20, 2011.
It explained: “Any authorised dealer interested in participating in the CBN intervention will do so by submitting its firm’s bid and offer rates for a specific amount and the spread between the bid and offer rates shall not exceed 20 pips (that is 20 kobo). The CBN shall reserve the right to either buy from or sell to an authorised dealer.
Quotes submitted by an authorised dealer shall be taken to be valid for an hour after the submission of the quotes.
Successful bids and offers shall thereafter be immediately communicated.
“The CBN may also participate directly in the interbank market by contacting authorised dealers either via the dealing system or telephone. When contacted, an authorised dealer shall provide quotes for a standard trade amount of $250,000 and at bid-offer spread of five pips (5 kobo) to the CBN.
“The standard trade amount and the bid-offer spread have both been aligned with interbank market specifications. The CBN intends to continue to adopt this approach”, it further said.
It, however, warned that any unprofessional trading conduct would be treated as a compromise of the market’s integrity and shall be sanctioned accordingly, saying that its intervention at the interbank market would settle on T+ 2 basis (two days after the transaction day).
“Funds purchased through the CBN interventions can be applied for eligible transactions and can equally be sold (transferable) to other authorised dealers in the inter-bank market. CBN intervention trades should therefore be recorded and reported as interbank transactions,” it added.
The CBN’s MPC had, about a fortnight ago, adopted some measures aimed at stabilising the naira.
It had among other policies, reduced the NOP to one per cent from five per cent. The NOP reduction had affected trade at the interbank, as it led to volatile trading at that segment of the forex market.
The CBN had also directed that foreign firms operating in the country should desist from purchasing forex at the regulated forex market. It had explained that the move was part of efforts to save the naira.
But the naira had been on the upswing since the measures were announced. It closed at N158.60/$1 at the interbank market on Friday, compared with the N167.80 to a dollar it stood late as at the end of September. It also closed at N149.95/$1 at the official market and N160/$1 at the parallel market.