CBN resumes sales of dollars to BDCs at N1,301/$

• Raises interest rate to 22.75%

• Experts fault new monetary rate

 

The Central Bank of Nigeria (CBN)  yesterday announced a series of interventions in the economy, including the resumption of sales of dollars to bureaus de change in a move to arrest inflation and stabilize the Naira.

In a  circular issued by Dr Hassan Mahmud, the Director of Trade & Exchange Department, the CBN announced its decision to distribute $20,000 to each eligible Bureau De Change (BDC) operator across the country.

The initiative is part of the broader efforts to achieve a market-driven exchange rate for the Naira and alleviate the pressures feeding into the parallel market.

“This allocation will be sold at a rate of N1,301/$, reflecting the lower band rate of executed spot transactions at the Nigerian Autonomous Foreign Exchange Market (NAFEM) as of the previous trading day, dated February 27, 2024.

“This strategy is anticipated to inject much-needed liquidity into the market and stabilise the Naira’s value.”

Also, the circular outlined specific guidelines for the BDC operators, stipulating that all BDCs are permitted to sell foreign exchange to end-users at a margin not exceeding one percent (1%) above their purchase rate from the CBN.

“This measure is intended to prevent excessive mark-ups and protect consumers from price exploitation.”

Checks by Daily Trust  revealed that this latest move yesterday saw the parallel market price drop to N1400/$ at Zone 4 area in Abuja and Allen Avenue in Lagos.

FX backlog: CBN releases $400m, $1.8bn outstanding

The CBN governor, Yemi Cardoso disclosed that $400 million was paid on Tuesday to settle some outstanding foreign exchange (FX) commitments.

He said: “I can tell you, just today, we paid out $400 million to those that have been identified.”

He said the CBN would only settle identified and genuine requests as it is not in the interest of the regulator to hold back payment from those that have been identified.

“In terms of the backlog, we are committed to clearing the backlog of identified and genuine requests that are pending,” he said.

Meanwhile, on February 5, Cardoso had said he inherited a $7 billion FX backlog when he became CBN governor in September 2023.

‘$26bn from unknown sources passed through Binance in 1yr 

Speaking to illicit flow of funds, Cardoso disclosed that $26 billion passed through Binance Nigeria from unidentified sources in one year.

In June 2023, the Securities and Exchange Commission (SEC) had said the operation of Binance Nigeria Limited, a subsidiary of Binance, was illegal.

Cardoso’s comments came amid recent media reports of a clampdown on crypto exchanges, including Binance, by the federal government.

Cardoso said the CBN was collaborating with the SEC to ensure there was no manipulation in the FX market.

He said: “We are concerned that certain practices go on that indicate illicit flows going through a number of these entities, suspicious flows at best.

“In the case of Binance, in the last one year alone, $26bn has passed through Nigeria from sources/users who we cannot adequately identify.

“There’s a lot that is going on now as a result of collaboration between the different agencies which include EFCC, the police, and of course, the office of the NSA.

“And in due course, as we progress and have more information to share, we will certainly share.

“But suffice to say that we are determined to do everything it takes to ensure that we take charge of our market or put it differently to not allow others to manipulate our markets in a way that ends as distortionary and sub-optimises for all Nigerians.”

Experts says new interest rate will put more strain on economy

The Central Bank of Nigeria yesterday raised the Monetary Policy Rate (MPR) to 27.75 percent from 18.75 percent, representing an increase of 400 basis points (bps).

The Monetary Policy Committee (MPC), which announced this in Abuja after its two-day meeting, said it was aimed at combating the soaring inflation in the country.

The MPC, which had kept the MPR at 18.75 per cent since last July, continues to maintain its hawkish stance, exceeding market expectations of a hike between 175bps to 225bps.

Economic and financial experts have expressed fears that the new 22.75 percent interest rate may put more strain on the economy.

Nigeria’s first professor of Capital Market Studies, Uche Uwaleke, told Daily Trust that increasing the interest rate by 400 basis points in one fell swoop “is simply an overkill.”

“Why not by not more than 200 basis points since they have another opportunity to meet next month and review the impact? They didn’t stop at MPR, they also jerked up the CRR (Cash Reserve Ratio) to 45% which at the previous level of 32.5% was among the highest in Sub Saharan Africa.

“The CBN governor had assured that policies of the bank would be evidence-based. Which empirical results support this aggressive move?

The professor said: “pity the real sectors of the economy,” explaining that the implication is that for every deposit in the bank, CRR takes 45% of it; while liquidity ratio takes 30%. So, it is only 25% of the deposit that banks can lend,” he said.

According to him, this has negative implications for access to credit, cost of capital for firms, cost of debt service by the government and asset quality of banks.

He said Nigerians should expect banks to quickly reprise their loans with negative consequences for non-performing loans and financial soundness indicators.

“By this overkill on the economy in a bid to crash elevated inflation which by the way has numerous non-monetary factors driving it, output is bound to shrink.

“So, expect lower GDP numbers, especially from agriculture and industry sectors as well as a surge in unemployment levels,” Uwalake said.

Also commenting on the new interest rate, CEO, Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said the move poses a major risk to the financial intermediation role of banks in the Nigerian economy.

He said: “The increase would constrain the capacity of banks to support economic growth and investment, especially in the real sector of the economy because the increases are quite significant.”

Analysts at Commercio research in their reaction said the CBN’s move to hike interest rate by 400bps, putting the MPR figure at 22.75%, was expected to cause increased strain on the economy, especially businesses.

They noted that the country, despite its resilience, might not have enough room to contain the latest hike in interest rates.

They added that the economy, which currently faces a series of fluctuating social and economic challenges, might be pushed further into devastation as an increase in the minimum cost of borrowing in the economy might cause a slowdown in the corporate sector, leading to a decline in the stock market.

They also said the new interest rate regime might exacerbate the unemployment rate.

“Although doubtful, we may see some degree of easing in the inflation figures before the end of the year,” they added.