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Foreign exchange transaction (spot sales) by the Central Bank of Nigeria (CBN) rose by 62.34 percent to a total of $25.7 billion in 2018 from $15.8 billion in the preceding year.
The spot sales comprised $3.4 billion at the inter-bank, $1.6 billion for invisibles, $1.3 billion for Small and Medium Enterprise (SMEs) and $8.3 billion at the Investors’ and Exporters’ (I&E) window.
On the other hand, the CBN purchased a total of $7.8 billion at the inter-bank market in 2018, which was 27.9 percent lower than $6.1 billion purchased in 2017.
The CBN’s annual activity report for 2018 released on Tuesday indicated that net sales by the bank amounted to $17.9 billion in the year under review compared with $9.7 billion in the previous year of 2017.
In 2018, the CBN maintained its direct intervention in the inter-bank foreign exchange market to cushion demand pressure and ensure exchange rate stability.
Meanwhile, forwards sales amounted to $11.1 billion in 2018 as against $11.2 billion in 2017. The sum of $10.4 billion matured at the forwards segment, while $2.8 billion remained outstanding at the end of December 2018.
This show a decline as the sum of $10.7 billion matured at the forwards, while $1.9 billion remained outstanding at the end of December 2017.
The increased volume of transactions in 2018 was attributable largely to the bank’s foreign exchange policy and its management, coupled with the improvement in the levels of foreign reserves during the year.
“Nigeria’s foreign exchange policies are not popular with devotees of the free market (if such exists) but should be viewed in context. The country’s voracious appetite for imports has contributed to placing FX related policies on the FGN’s front burner,” said analysts at FBNQuest.
According to a report by FBNQuest, turnover at the window amounted to $60 billion in 2018, with the CBN supplying 28.3 percent of the total. But year-to-date, total forex inflows via the I&E window stand at $14.8 billion, with foreign portfolio investors (FPIs) accounting for 62 percent.
“We note that exits by FPIs recorded in Q4 were mainly due to the US policy normalisation at the time as opposed to macroeconomic slippage or potential political risks,” the analysts said.
At the Naira-Settled Over the Counter Foreign Exchange Futures, the CBN’s report revealed that a total of $7.9 billion was traded at the futures market at the end of December 2018, as against $5.5 billion in the corresponding period of 2017.
Similarly, $6.4 billion matured, while $4.8 billion remained outstanding in 2018, whereas $5.8 billion matured, while $3.3 billion was outstanding in the preceding year.
The increased level of activities at the futures market was due to improved confidence in the economy, as investors’ perception about future exchange rates remained optimistic.
The exchange rate at the inter-bank market remained relatively stable in 2018 due to the improved liquidity in the market. At the inter-bank segment, the rate opened at N306/$ on January 2, 2018 and closed at N307/$ at end-December 2018. The monthly average exchange rate opened at N305.78/$ in January, marginally appreciated to N305.61/$ in April and depreciated to N306.92/$ in December 2018.
The direct sale of foreign exchange to BDC’s continued in 2018. However, the bank increased the volume and frequency of its weekly sales to three times per week in May and subsequently to four times per week in November.
This was to manage the demand pressure, which emerged due to capital flight as the market reacted to normalisation of rates by the US Federal Reserve, dwindling crude oil price levels and ensure exchange. Consequently, total sales to a BDC per week stood at $75,000.