Naira stabilizes against dollar on CBN’s cashless policy
Some policies of the Central Bank of Nigeria which have begun to reflect in the nation’s foreign exchange market, may help the regulatory body manage Naira volatility, as the year runs to an end, dealers say.
Nigeria’s local currency have been appreciating gradually, while stability has been recorded in recent weeks, even as the premium between the official and parallel market is closing up, compare to months before.
A major bureau de change operator in Marina, Lagos Island, Gali Kabiru, said the Naira is gradually stabilising against the dollar.
“The exchange rate is not going up like before. The rate is coming down now” he said.
According to Mr. Kabiru, a major reason for this is the Central Bank’s Cash-less policy introduced earlier in the year.
“It is because of the cash-less policy. There is no much money in circulation. People are no longer carrying or using cash like they used to. Demand has fallen.”
Another dealer in Ikeja, Musa, said dollar now sells for about N159 to N160 from dealers and currency changers, while they buy for about N157.
“The exchange rate has come down,” he said “The rate usually depends on the bidding. If at the Foreign exchange market, the Central Bank is able to meet demand, or at least almost meet demand, there would be less pressure on the Naira. If enough is supplied, there would be enough for everyone and so that way, the Naira can be stable and exchange rate would be down” he said.
The Naira appreciated by 0.01per cent to close at N155.75/$1 at the official market on October 16th as dollar sales from energy companies continue to meet the demand in the market.
The local currency appreciated by 0.13 per cent to N159/$1 at the parallel market and depreciated by 0.04 per cent to N157.42/$1 at the inter-bank market within the first half of October. The total dollar sales in the during this period amounted to $565.08m; 27.55 per cent less than the corresponding period’s volume of $780m in September, according to reports from Financial Derivatives Company, FDC, an investment advisory, research and analysis firm.
The stability in the forex market attests to the effectiveness of recent exchange rate policy measures.
These include the combined effect of the increase in Cash Reserve Requirement, reduction in the Net Open Position and the policy which bars Deposit Money Banks ,DMBs, and Discount houses from accessing lending windows (SLF and Repo) and WDAS simultaneously.
The Central Bank’s demand for a 1 per cent Net Open position from the banks led to a decline in bank’s appetite for forex, as they had to sell off dollar positions to meet up.
Also, there have been an increase in the supply of foreign exchange by oil companies to the interbank market, according to the Central Bank, which has helped ease pressure.
The Central Bank has acknowledged that the appreciation of the Naira at the BDC segment of the foreign exchange market can be traced to low demand of foreign exchange by end users vis-a-vis the high supply of foreign exchange at the Interbank market, and also, the taming of speculative activities, which usually puts pressure on the Naira.
The premium between official and parallel market declined to N3.25 from the year’s peak of N8.57 in June. This is the lowest premium in four months.
It is no doubt that no matter how little, the Cash-less project is gradually gaining traction in Nigeria with the number of deployed and active POS grown from 5,557 as at January 2012 to 104,858 as at October 14, 2012 and another 176,604 POS terminals already registered.
Emenike Eleonu, who represented Tunde Lemo at an event in Lagos recently, said Cumulative POS Transactions recorded 1,501,193 transactions valued at N27.8 billion compared to a mere 3,197 transactions valued at N99,657,191.52 January 2012. In about a week, earlier in October, about 71,000 transactions accounted for about N1.2 billion, “leading to a steady decrease in Currency in Circulation” he said.
If these measures and policies are maintained, the volatility the Naira suffered in the recent past could be effectively reduced to its minimum, especially at this yearend season when speculators are usually on the rise.