CBN Kicks-off Monetary Policy Reforms, Floats Naira
- Collapses forex into import and export window
- Ditches RT200 rebate, Naira4Dollar remittance schemes
BY EDMOND ODOK – The Central Bank of Nigeria (CBN) has adopted a clean float foreign exchange management regime in line with President Bola Ahmed Tinubu’s promise to carry out monetary policy reforms to restore a single exchange rate for the country.
A statement by the apex bank’s new management and signed by its Director in charge of Financial Markets, Angela Sere-Ejembi, on Wednesday announced immediate changes to operations in the Nigerian Foreign Exchange (FX) market.
Curiously, the CBN has scraped its hitherto multiple exchange rate windows and collapsed them into the business-based Investors and Exporters (I&E) window with the statement saying; “All segments are now collapsed into the Investors and Exporters (I&E) window.”
According to the circular to all authorized dealers and the general public, titled: “Operational Changes to the foreign exchange market”, Dr Sere-Ejembi said; “Applications for medicals, school fees, BTA/PTA, and SMEs would continue to be processed through Deposit Money Banks (DMBs)”.
Furthermore, the circular stated that the “Willing Buyer, Willing Seller” model at the I&E Window has been reintroduced, adding; “Operations in this window shall be guided by the extant circular on the establishment of the window, dated 21 April 2017 and referenced FMD/DIR/CIR/GEN/08/007.
“All eligible transactions are permitted to access foreign exchange at this window. The operational rate for all government-related transactions shall be the weighted average rate of the preceding day’s executed transactions at the I&E window, calculated to two (2) decimal places.”
Similarly, the apex bank’s circular noted the introduction of the prescription of trading limits on oversold FX positions with permission to hedge short positions with over-the-counter (OTC) futures. Limits on overbought positions shall be zero, even as it also re-introduced order-based two-way quotes, with a bid-ask spread of N1. All transactions shall be cleared by a Central Counter Party (CCP).
It further noted that there is the reintroduction of the Order Book to ensure transparency of orders and seamless execution of trades, whereas the operational hours of trades shall be from 9 am to 4 pm, Nigeria time.
Reports indicate that the latest market rate said to be a “willing buyer, willing seller” arrangement permeated the foreign exchange market as the Naira depreciated against the US dollar, trading at N664.04/$ (from N471.67) at the (official) Investors and Exporters (I&E) window, data from the FMDQ Exchange has shown.
Meanwhile, some financial experts have explained that a free-floating exchange rate occurs when a government allows the exchange rate to be determined purely by market forces and there is no attempt to ask the central bank to influence the external value of the exchange rate through its interventions.
President Bola Ahmed Tinubu, in his May 29 inaugural speech, said the CBN must work towards a unified exchange rate, stressing that the nation’s Monetary Interest Rate, currently at 18.5 percent, is anti-people and unproductive.
The President further stated thus; “Interest rate is currently too high. It’s anti-people, anti-business. We have to work on all of those”.
However, many financial commentators are still wondering how the President would convince members of the apex bank’s Monetary Policy Committee (MPC) to loosen the official interest rate benchmark to achieve his campaign promise.
Under its suspended Chief Executive, Mr Godwin Emefiele, the CBN insisted on continuing with its tightening regime to tame Nigeria’s rising demand-pull inflation currently at 22.22 percent.
