Glut at the foreign exchange parallel market or bureau de change has forced traders to buy dollar at N400 yesterday.
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Most traders in Zone 4, Abuja and Lagos halted buying the dollar in the afternoon due to the apprehension in the market. Many customers who visited markets yesterday were selling the Forex not buying, the process which created panic among the traders.
At the same time some of the traders awaited the pronouncements of the Monetary Policy Committee (MPC) by the Central Bank of Nigeria yesterday before deciding on the proper price on the dollar.
The CBN has increased the weekly auction for the BDCs operators from the $8,000 to $15, 000 while sustaining the supply in the forward market.
Rising from the MPC meeting, the CBN vowed to close the huge gap between the official foreign exchange market and the parallel market.
Addressing journalists at the end of the meeting which saw all key rates retained, the CBN governor, Mr. Godwin Emefiele said naira gained in recent weeks following the flooding of the Forex market with dollars by the bank.
The CBN governor said that the bank would sustain the supply until a convergence occured.
“The direction is that there is a determination to see to the convergence of those rates and with what we have seen so far, we are very optimistic that those rates will converge. And all the elements in the foreign exchange will no doubt be implemented” he said.
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“We have taken a decision that there was the need to reverse the trend (falling naira at the parallel market) and that is the reason we specifically started the FX intervention and I am happy indeed, very gratified that those interventions are very positive, we have seen the rate now converging and we are strongly optimistic that the rate will converge further” he said.
“In terms of sustainability I think, it’s important for us to say that reserve at this time is still trending upward to almost close to $31bn as I speak with you, and the fact that we have done this consistently for close to five weeks, should tell everybody or those who doubt the strength of the Central Bank to sustain this policy” the CBN governor said.
On why it retained interest rate at 14 percent, Mr. Emefiele said the “Committee also noted the benefits of loosening at this time which will be in line with the needs of fiscal policy to restart growth.
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The MPC, however, noted that loosening would exacerbate inflationary pressures, worsen the exchange rate and further pull the real interest rate into negative territory. Since interest rates are sticky downwards, loosening may not necessarily transmit into lower retail lending rates.”
On rising non performing loans in the banks he said on “the outlook for financial stability, the Committee noted that the banking sector was becoming less resilient as a result of the adverse macroeconomic environment.”
Commenting Rislanudeen Mohammad, the former Acting Managing Director, Unity Bank said “I think the Monetary policy committee took the most plausible decision at this time by keeping all rates on hold especially the monetary policy rate at an 11 year high of 14 percent especially given the fact that we have had many positives since the last meeting in January.
“However growth is still challenged with such high monetary policy rate, high inflation rate and negative interest rates. The recent initiative towards harmonization of fiscal, monetary and trade policies especially within the context of the economic recovery and growth plan will definitely help in fast tracking our exit from stagflation and recession provided there is timeous implementation of the strategies put in place in the said plan.”
FXTM Research Analyst, Lukman Otunuga said the fact that the CBN had decided to keep monetary policy unchanged should be no surprise especially when factoring how the nation is in the process of a critical structural transformation.
Otunuga said: “Although the lingering fears decelerating economic growth and concerns over surging prices have partially attributed to the Central Bank’s passive stance, the overall sentiment towards the nation continues to display early signs of improvement.”
Analysts at the Financial Derivative Company limited (FDC), said the apex bank’s wait and see approach came as no surprise and based on the need to monitor the inflationary expectations as well as assess the impact of the current forex intervention.
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