Forex Stability: CBN’s Sales Rise 6.23% To $11.42bn In 7 Months - NEW TELEGRAPH
NOVEMBER 29, 2022
In its bid to ensure exchange rate stability amid surging demand for dollars, the Central Bank of Nigeria (CBN) sold a total of $11.42billion to authorised dealers at the foreign exchange market in the first seven months of this year, compared with $10.75billion in the corresponding period of 2021, findings by New Telegraph show.
This means that the amount of forex that the apex bank sold to authorised dealers from January to July this year, increased by 6.23 per cent ($670 million) from the $10.75 billion it sold in the first seven months of 2021.
Data obtained from the CBN’s recently released monthly economic report for July 2022, indicates that it sold a total of $1.75billion to authorized dealers during the month, which when added to the $4.86 billion and $4.81 billion sold in Q1 and Q2’22 respectively, means that the regulator sold a total of $11.42 billion to the dealers between January and July.
Although the amount of forex sold to authorised dealers in the first seven months of this year was more than what it sold in the corresponding period of 2021, New Telegraph’s analysis of the CBN’s monthly and quarterly economic reports, for the period under review, showsthat forex sales by the apex bank at the various windows of the official foreign exchange market have generally been on a downtrend this year. For instance, the monthly economic report for July 20222, stated: “Total foreign exchange sales to authorised dealers by the bank was $1.75 billion in July, a decrease of 15.4 per cent, relative to $2.07 billion in June. “A breakdown shows that foreign exchange sales at the interbank/invisible window and matured Swaps decreasedby22.0percentand 59.1 per cent, respectively, to $0.13 billion and $0.27 billion, below their respective levels in the preceding month. “Incontrast,
FXsalesatInvestors and Exporters (I&E), Secondary Market Intervention Sales (SMIS) and Small and Medium Enterprises (SMEs) windows rose by 5.8 per cent, 0.6 per cent and 65.7 per cent, respectively, to $0.44 billion, $0.72 billion, and $0.19 billion, compared to their levels in June.” Also, the economic report for Q2’ 2022, stated: “Total foreign exchange sales to authorised dealers by the Bank at $4.81 billion, decreased by 0.9 per cent, compared with the level in the preceding quar- ter.
Disaggregation shows that SME interventions and sales at the investors & exporters window declined by 8.6 per cent and 41.3 per cent to $0.34 billion and $0.83 billion, respectively, relative to the preceding quarter. “However, interbank/invisibles and SMIS windows, increased by 5.3 per cent and 14.7 per cent to $0.48 billion and $2.05 billion, compared with the amounts in the preceding quarter. Similarly, matured swap contracts rose by34.6 percent to $1.11 billion, relative to the previous quarter’s level.”
Analysts note that since the 2020 Covid-19 crisis, which led to the price of oil (the commodity that accounts for 80 per cent of Nigeria’s forex earnings) dropping to record lows and also triggered a sharp decline in capital inflows into the country, the CBN has grappled with ensuring that it sustains its interventions in the official forex market despite falling external reserves.
Apart from the several steps taken by the apex bank to conserve the reserves (including ending its sales of forex to Bureaux De Change in July last year) and boost diaspora remittances, Nigeria, in August 2021, received $3.35billion as the country’s share of the general allocation of Special Drawing Rights (SDRs) equivalent to $650 billion (about SDR 456 billion) approved by the Board of Governors of the International Monetary Fund (IMF) to boost global liquidity. While the SDR allocation helped to increase the country’s external reserves from $34billion to $40.52billion at the end of last year, thus providing more support for the CBN to defend the naira, asurgeindemandforforexat thebeginning of thisyear, has resulted in the depletion of theexternalreserves, thereby compelling the apex bank to step up its interventions in the forex market in order to defend the local currency.