By Chinwendu Obienyi
Amid revelations from JP Morgan that Nigeria was living on borrowed times, the nation’s currency, the Naira fell to N900/$1 on Tuesday at the parallel segment of the country’s FX market.
JP Morgan on Monday in a report titled; Nigeria: Reform pause rather than fatigue, said that Nigeria’s FX reserves was “significantly lower than prior estimates, owing to larger-than-expected currency swaps and borrowing against existing reserves.
The report also said that balance of payment (BoP) deficit means that the authorities needed to implement reforms that will attract steady external funding adding that in the near terms, the Central Bank of Nigeria (CBN) has the ability to source FX at commercial and semi-commercial rates.
It further said that the stall in reform momentum and lower net FX reserves unnerve markets but that it remains cautiously optimistic of Nigeria. The report added that the foreign exchange market will remain in focus given the likely lower starting point for net FX reserves, with an overall balance of payments deficit pointing towards continued FX pressure.
The report sparked a rise in the dollar as FX dealers at the parallel market bought a dollar at N885 and sold at N900/$1. Before this revelation, the naira had for the past days remained flat at N860/$ amid cooling demand pressure at the parallel segment of the market. However, the Naira at the I&E window closed at N770/$1.
It will be recalled that after a long hiatus, the CBN has finally yielded to calls from industry stakeholders to bring back Bureau De Change (BDC) operators into the financial system.
This was even as the apex bank introduced a host of new operational mechanisms aimed at improving their operations. This move marks the re-entry of BDCs into the country’s foreign exchange market and also marks a departure from previous policies, including those enacted under the tenure of former CBN Governor Godwin Emefiele, which had temporarily excluded BDC operators from participating in the market.
The circular signed by the Director, Trade and Exchange Department, CBN, Dr O.S Nnaji, said that the framework would include the spread on buying and selling by BDC operators and is set to fall within a permissible range of -2.5 per cent to +2.5 per cent of the Nigerian Foreign Exchange market window’s weighted average rate from the previous day. Another significant alteration is the mandatory submission of periodic financial reports by BDC operators.
These reports, including daily, weekly, monthly, quarterly, and yearly renditions, are to be submitted through the upgraded Financial Institution Forex Rendition System (FIFX), tailored to meet the specific requirements of each operator. This change aims to enhance oversight and ensure that the BDC sector operates with greater accountability.
The circular further emphasized that failure to submit accurate returns within the specified timeframe will result in sanctions, potentially leading to the withdrawal of operating licenses.
“Even in cases where BDC operators have had no transactions during a given period, they are required to submit nil returns, thereby fostering a culture of compliance and thorough record-keeping. All BDC operators and the public are urged to familiarize themselves with these new guidelines and adhere to them meticulously”, the circular read.
By implementing these measures, the CBN anticipates a more robust and well-regulated BDC segment that aligns with broader efforts to enhance Nigeria’s foreign exchange market efficiency.