CBN Moves to Quell FX Speculation, Debits Banks N1.47trn


As part of effort to manage banking system liquidity and prevent speculation in foreign exchange (FX), the Central Bank of Nigeria (CBN) on Friday debited about 30 banks a total of N1.47 trillion as additional cash reserve requirement (CRR).

A source disclosed this to THISDAY at the weekend. But the amount would be refunded to the banks, this week.

“The banks were debited on Friday to manage the amount of liquidity in the system. This is to prevent them having excess liquidity to speculate in FX. So, the idea is not to allow them hold excess liquidity. But the banks would be credited this week,” the source who pleaded to remain anonymous said.

The moves come after the central bank’s campaign last year to force lenders to give out more credit by twice increasing the minimum loan-to-deposit ratio.

In September, it debited banks’ accounts with N500 billion for falling short of the lending targets, refunding most of the reserves the next month.

“The move will drain excess liquidity from the market that could’ve been used to buy foreign exchange, helping to support the naira,” the chief economist of Stears Data, Michael Famoroti, told Bloomberg.

It may also pressure bank earnings as the capital could’ve been deployed into other money-making avenues, he added.

“The central bank doesn’t want them to be playing around with exchange rate, so they want liquidity very tight,” he said.

Meanwhile, oil price lost for the third consecutive week on the back of declining global demand due to economic lockdown globally, according to a report by Afrinvest West Africa Limited.

An agreement by major oil producers to reduce global output have failed to lift prices amid low storage concerns which hindered positive response in the global oil market.

Following this, Brent crude price declined 11.6 per cent week-on-week, to $24.8 per barrel, while the country’s external reserves further moderated 0.1 per cent to $33.6 billion.

The CBN spot rate closed flat at N360.50/$1.

At the parallel market, the naira depreciated N14 to close at N420/$.

The total value of open contracts of the naira at the FMDQ Securities Exchange (SE) FX Futures Contract Market advanced 6.8 per cent ($991.6 million) to $15.6 billion.

In addition, the MAY 2021 instrument (contract price: N391.20) received the highest subscription of $195.9 million which took total value to $196.8 million. On the other hand, the JAN 2021 instrument (contract price: N390.26) recorded the least subscription of $7.1 million with a total value of $25.4 million.

“The prospect of higher oil prices remains weak due to the impact of COVID-19, thus we expect sustained exchange rate pressures.

“In the coming week, we expect inflows from OMO maturities worth N30.7 billion. Also, we envisage that system liquidity will remain elevated, driving rates lower in the secondary T-Bills market,” analysts at Afrinvest stated.