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Following several months of battling with an ever widening margin between the value of the naira at the official market and the interbank end, the Central Bank of Nigeria (CBN) has closed its twice weekly sale of foreign exchange through the retail Dutch Auction System (rDAS), thereby, tactically devaluing the currency.

The CBN sells foreign exchange to banks and bureaux de change operators at the RDAS which holds every Monday and Wednesday at a fixed rate of N168 to the dollar, although the value of the local currency has risen to N200 to the dollar in recent times.

This week, the CBN sold foreign exchange to lenders at a rate higher than its band.

In a statement issued and signed by the director of Corporate Communications,

Ibrahim Mu

‘Azu, the apex bank said it had taken the decision to close the official window to end the multiple exchange rate and also preserve the country’s dwindling external reserves. The apex bank noted that the wide gap between the official and interbank value of the naira had engendered undesirable practices, including round tripping, speculative demand, rent seeking, spurious demand and inefficient use of scarce foreign exchange resources by economic agents.

In view of this, Mu’azu in the statement, said, It has become imperative that appropriate actions be taken to avert the emergence of multiple exchange rates regime and pressure the country’s foreign exchange reserves. Consequently, we wish to inform all authorised dealers and the general public that with effect from the date of this press release, the rDAS/wDAS foreign exchange window with the CBN is hereby closed. Henceforth all demand for foreign exchange should be channeled to the interbank forex market.

In line with the various assurances of its governor,

Godwin Emefiele

, the apex bank said it would continue to intervene in the interbank foreign exchange market to meet genuine/legitimate demand.

Meanwhile some market operators have commended the move of the CBN saying it is a tactical move to ensure that the fate of the naira does not worsen. According to the head of Research at Sterling Capital.

Sewa Wusu

, the closure of the rDAS is a tactical move to bridge the gap at the various segment a of the market instead of announcing another round of announcing another round of devaluation. Thus the devaluation has been done through the closure of the rDAS.

Wusu who spoke with Leadership in a phone interview said the move which he described as bright and sharp would curtail the sharp practices of banks which had continued to put pressure on the dwindling external reserves.

Also, the chief executive of Financial Market Dealers Association. Wale Abe noted that the CBN noted that the CBN had changed tactics after its previous efforts had not yielded the desired results.

What the CBN did is a change of methodology. If a method is being inefficient, you can replace it with another. What is important is that supply should meet demands at the interbank, he stated.

On his own part, analyst at FBN Capital.

Olubunmi Asaolu

noted that as long as there is enough supply to interbank, nothing will happen. The move shouldn’t worsen the naira rate as long as demand is being met.

Meanwhile, overnight lending rate at the Interbank market which has hovered above 80 per cent since last week crashed yesterday as an inflow and expected inflow of funds from maturing treasury bills flooded banks.

One dealer told LEADERSHIP that there was an expectation of the crash of overnight lending rate to around 25 per cent during the day as many lenders expected inflow of funds.

Overnight rate dropped to 21.8750 percent from Tuesday’s rate of 93.1250 percent, while 1month, 3months and 6months rates closed lower yesterday at 15.3283, 16.3092 and 17.1230 per cents from 17.0148, 18.1363 and 19.0292 per cents which it was on Tuesday.

Olakunle Ezun explained that many banks who were in demand of funds in the past week had enough funds and we’re not out to borrow. This, he said brought down the rate from 85 percent which it was on Tuesday to 21 per cent yesterday as many of the big suppliers of fund in the market preferred to bring down the rates instead of keeping idle funds.

The naira also added value selling at N197 the dollar up from N198 to the dollar which it was on Tuesday.

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