CBN makes first forex intervention in 2020 with $253m

Mops up N411b via OMO, interbank rates spike
Inflation, payment system 2020 outlook varies

 By Chijioke Nelson, Asst. Editor, Finance/Economy
The Central Bank of Nigeria (CBN), at the weekend, made its first foreign exchange (forex) intervention for the year, with $253.38 million, under the...
retail Secondary Market Intervention Sales (SMIS) and CNY16.76 million in the spot and short-tenored forwards segment of the inter-bank foreign market.
The development may have marked the take-off of the 2020 forex intervention efforts of the apex bank, aimed at supporting the monetary policy objectives that are challenged by the weak fiscal environment and low domestic productivity, leading to huge importation.
The Director, Corporate Communications Department, Isaac Okorafor, who disclosed this, said the intervention was for requests in the agricultural and raw materials sectors.
The Chinese Yuan, on the other hand, was for Renminbi-denominated Letters of Credit.
Okorafor further expressed satisfaction over the stability of the foreign exchange especially during the yuletide and New Year celebrations, which according to him, was largely due to sustained intervention by the bank.
He assured that CBN would remain committed to ensuring that all the sectors of the market continue to enjoy access to the needed forex
Meanwhile, the local currency remains stable around N360 per dollar at the Bureau de Change (BDC) segment of the foreign exchange market, while the Chinese Yuan is exchanged at N46.
CBN Governor, Godwin Emefiele, had listed the bank’s priorities in 2020 to include support for greater economic growth, price stability, and low inflation, hinting the continued tight monetary policy stance of and the establishment of a new scheme tagged: “Bankers’ Charitable Endowment Fund.”
He said despite the positive growth the economy experienced, the pace of growth had remained slow due to “some structural constraints” in the economy and given Nigeria’s growing population, exposure to shocks from the oil price and sentiments in the global financial markets.
“Though we will act to appropriately adjust the policy rate in line with unfolding conditions and outlooks, the CBN will continue to ensure that the policy interest rate is delicately set to balance the objectives of price stability with output stabilization,” he explained.
On the country’s External Reserves, the Governor said the Bank’s effort at supporting domestic production in the agriculture and manufacturing sectors among other policies, had continued to encourage foreign exchange inflows into the Nigerian market.
According to him, over $60 billion worth of transaction had taken place since the inception of the Investors’ and Exporters’ window in April 2017, adding that Nigeria’s foreign exchange reserves are still high, compared to $23 billion in the same period in 2016.
Similarly, the interbank rates received a nudge up at the weekend, as the transactions closed with the money market instruments like the Overnight call trending at 10.71 per cent, representing a 6.29 per cent rise. Also, the Open Buy Back rate rose by six per cent to close at 9.71 per cent.
The rise in the money market rates was triggered between Wednesday and Thursday, as outflows from the Open Market Operations (OMO) auction by the apex bank, worth N411.14 billion, negatively impacted the quantity of money in circulation.
But analysts at FSDH Research said: “We expect the money market rates to move in tandem with system liquidity going forward.”
At the OMO auction on Thursday, the CBN bills worth N411.14 billion were sold across the 89-day tenor (N100 million) and 362-day tenor (N411.04 billion).
The stop rate for the 362-day tenor at 13.25 per cent, cleared lower by one basis point when compared to the previous auction, and the 89-day tenor closed at 11.48 per cent.
Inflation trend
Nigeria would soon get the December inflation numbers from the National Bureau of Statistics, but the 11-month trajectory up till November 2019, is still raising concerns among analysts and consumers, especially, the 2020 outlook.
Inflation started trending downwards in the first quarter (Q1) and Q2 of 2019, but assumed a reversal mode in Q3, as CBN’s restriction on food-related imports started putting pressure on local food prices and other manufacturing inputs.
Worse still, the closure of land borders, as a foil to smuggling and heightened insecurity in the country, stoked panic buying, as well as supply shortage.