By Babajide Komolafe

The Central Bank of Nigeria (CBN) has lamented the low patronage of the foreign exchange forwards market introduced in March.

Investigation revealed that at a meeting with banks’ treasurers on Thursday in Abuja, the apex bank observed that patronage at the forwards market has been below expectation.

The meeting which was chaired by the Deputy Governor, Economic Policy, Mrs Sarah Alade, deliberated on recent developments in the foreign exchange market, recent decisions of the Monetary Policy Committee and the status of the external reserves.

It was gathered that the treasurers attributed the low patronage of the forex forwards to the three per cent exchange rate band. The CBN maintains a three per cent band around the N150 per dollar exchange rate of the naira for stability purposes. Thus, the exchange rate is expected to be maintained between N145.5 per dollar and N154.5 per dollar.

According to treasurers at the meeting, since the CBN has assured that the exchange rate would not rise beyond N154.5 per dollar, there is no motivation for end-users to purchase forwards market where the exchange rate is higher than N154.5 per dollar.

Financial Market Dealers Association (FMDA) data indicate that exchange rates for 30 Days and 60 Days forwards are N156.96 and N158.67 per dollar, higher than the official exchange rate and interbank market rate which closed at N153.09 and N155.05 per dollar on Friday.

Foreign exchange forward is a foreign exchange derivative product used to hedge against losses due to exchange rate movement.

On March 3rd, the CBN announced the approval of foreign exchange Options, Forwards, Swaps and Cross- Currency Interest Rate Swaps (CCIS).

“The approved hedging products are FX Options, Forwards (Outright and Non-

Deliverable), FX Swaps and Cross-Currency Interest Rate Swaps”, it said in a circular to all authorised dealers titled, Guidelines for FX Derivatives and Modalities for CBN FX Forwards.

“Authorised dealers are now allowed to offer European-styled FX call and put option contracts to their customers and in the inter-bank market. All hedge transactions with the customers must be backed by trade (visible and invisible) transactions. The CBN shall grant approvals for authorised dealers that qualify to engage in options”, it added.

While announcing the introduction of foreign exchange forwards on March 3rd, the CBN said, the aim of the foreign exchange is to boost the trading liquidity in hedging products.