Naira may remain 498/$1at parallel market

…as CBN injects $660m to reduce forex shortage

The Naira may not drop below its current trading rate of 498 per US dollar at the parallel market, due to the recent $660milliion released by the Central Bank of Nigeria (CBN) to reduce foreign exchange shortage in the country.

The naira closed at 305 to the dollar at the official forex market and remained unchanged at 498 on the parallel market on Thursday, the same rate it has been trading in the last two weeks.

However, Deposit Money Banks (DMBs) quoted the local currency at 314.50/dollar on the official interbank window against the 315.12 it closed on Wednesday.

Forex dealers’ believed that the move by the apex bank would help in ensuring the stability of the Naira in the coming week, as the weakness of the dollar is seen boosting other African currencies.

“The pressure on the market has reduced slightly because of the recent dollar sales by the central bank to clear part of the backlog of demand and the regular sales to bureaux de change by Travelex,” one trader said.

The central bank on Wednesday sold dollars in a special auction aimed at clearing the backlog of dollar obligations of manufacturers, airlines agriculture and petroleum sectors.

Meanwhile, the CBN has promised due sanctions for any authorized dealer that defaults in the settlement of any auction or two-way quote with it in the financial market.

The sanction includes suspension from all auctions as well as from its discount window.

The central bank stated this in a circular to all authorised dealers titled: “Amendment of S4 Business Rules and Guidelines,” dated February 1, 2017, that was signed by its Director, Financial Markets Departments, Dr Alvan Ikoku.

Specifically, the amendment was with reference to Section 10.1 of the S4 Business Rules and Guidelines. The directive was with immediate effect.

It stated: “Any auction of 2-way quote with the CBN must be settled. If it is on queue, it shall be given highest priority and when it fails to settle, the system shall generate an automatic Intra-day Liquidity Facility (ILF) backed by collateral to settle the transaction. Where there are no securities, the allotment shall be cancelled and the defaulter suspended from all auctions for eight weeks from the date of default.

“ILF shall be bought back or converted to Standing Lending Facilities (SLF) by the participant by the close of business day, failing which it shall be automatically converted to SLF at the prevailing SLF rate plus 500 basis points.

“If any SLF is not repurchased by the participant bank by the next business day, such participants shall not be eligible to access the discount window until such outstanding obligation is settled in accordance with Section 27 of the Guidelines for the Conduct of Repurchase Transactions under the CBN Standing Facilities.”

Furthermore, the central bank directed that henceforth, all SLFs must be bought back latest by 10 am on the maturity date, adding that ” failing which, the encumbered securities would be automatically rediscounted.”