CBN spends $4.7bn to defend naira
Written by Taiwo Adediran on April 13, 2015
The Central Bank of Nigeria (CBN) has spent $4.7 billion to defend the naira this year, even as the nation’s external reserve fell to $29.6 billion week.
Data published by the CBN on its website show that the external reserve fell by $189 million from $29.778 billion on April 2nd to $29.589 billion on April 9th. Consequently the reserve has fallen by $4.879 billion since December 31st 2014.
Commenting on developments in the nation’s foreign exchange market in the first quarter of the year, Managing Director/Chief Executive, Financial Derivative Company Limited, Mr. Bismarck Rewane said that the apex bank has so far spend $4.7 billion to defend the naira this year, adding that the nation’s external reserve import and payments cover has fallen to 4.8 months, 1.2 months below the international standard for healthy external reserve.
Rewane also stated that the 13 per cent appreciation of the naira in the parallel market in the last two weeks to N197 per dollar from N225 was due to election sentiment and elimination of fear premium. He predicted that the appreciation would soon be reverse and the naira would depreciate further because the fundamentals remain unchanged. “At the parallel market, the naira will trade at N215-N220 against the dollar again”, he said”.
Rewane advised the incoming government of the General Mohammudu Buhari to allow the naira find its true value, calling for reduction in interest rate and easing of monetary policy stance.
Meanwhile lending rates at the interbank money market shot up sharply last week due to cash outflow for dollar purchase, investment in government securities and debit for Cash Reserve Requirement (CRR)
Data published by Financial Market Dealers Quote (FMDQ) show that interest rate for Collateralised lending (Open Buy Back) and Call lending rose by over 150 percent each. While interest rate on Call rose by 185 basis points to 28.67 on Friday percent from 10.17 percent the previous week, interest rate on Collateralised lending (open buy back) rose by 176 basis points to 27.17 percent on Friday from 9.5 percent.
Kawaka Discount House in its weekly Interbank Newsletter reveals that the CBN withdrew N110 billion from banks for the Cash Reserve Requirement (CRR) for March. This in addition to outflow of N293 billion for treasury bill purchase caused the amount of idle cash in the interbank market to drop to zero from N326.44 billion on Tuesday.