By BABAJIDE KOMOLAFE
The Central Bank would soon review upward the limit on banks’ autonomous foreign exchange sales to bureaux de change (BDC).
The apex bank indicated this in the communiqué issued at the end of the monetary policy committee (MPC) on Tuesday.
It will be recalled that the apex bank last month limited the amount of autonomous foreign exchange each bank could sell to BDCs to $250,000 on banks’.
The policy though occasioned the appreciation of the naira in the official and interbank market; it however triggered depreciation of the naira in the parallel market. This development widened the gap between the official and parallel market rates to N11.19 on Tuesday from N4.19 on June 24th when the limit was introduced.
The widening gap however triggered round-tripping of foreign exchange from the interbank market to the parallel market.
Commenting on this development, the MPC of the CBN said, “At the wDAS, the exchange rate closed at N151.61 (including the 1% commission) on 22nd July, 2011, representing an appreciation of 2.14 per cent over the N154.91/US$ on 23rd May, 2011. The Inter-bank selling rate opened at N156.67/US$ on 23rd May, 2011 and closed at N152.33
N152.33 on 22nd July, 2011, representing an appreciation of 2.77 per cent. At the BDC segment of the market, the exchange rate closed at N166.00/US$ on 22nd July, 2011, representing a depreciation of 4.40 per cent over the opening rate of N159.00/US$ on 23rd May, 2011.
In the light of this, the Committee noted that the premium between the rates at the wDAS and the interbank rate narrowed towards the end of the review period, while that between the wDAS and the BDCs widened which is not unconnected with the measures taken to limit sales to BDCs.
However, while strengthening of currency is an important factor in mitigating inflationary pressures, the spread may lead to arbitrage by players and fuel unhealthy speculation.
“The Committee commended the CBN for the limit placed on the foreign exchange sales to the BDCs. However, in view of the widening premium between the wDAS and BDC rates, the Committee encouraged the CBN to review the existing limit. The decision and communication in this regard will be made by the Bank.”
On the external reserves, “The Committee noted the modest accretion to external reserves in recent months, but remained concerned about the sustained low level of accretion in the face of higher oil output, higher oil exports volume and higher oil prices.
Gross external reserves stood at US$33.73 billion as at 21st July, 2011, representing an increase of US$1.84 billion or 5.77 per cent over the level attained on 30th June, 2011.
Given that the current oil price level may not be sustained in the event of a slowdown in global economic recovery, the Committee reiterated the need for pursuing policies to foster macro-economic stability, economic diversification as well as encouraging foreign capital inflows.”