Activities in the Nigerian foreign exchange market was a bit 'interesting' this week. This was following the shift in the forex stance by the Central Bank of Nigeria (CBN) after it had stayed unrelenting for quite some time. After placing a ban on domiciliary deposits in 2015, the CBN lifted this ban and ordered banks to begin accepting deposits into customers' domiciliary accounts while also discontinuing sales of foreign exchange to Bureau de Change (BDC) operators.
The CBN noted that against the reason for establishing the BDC market (to meet the retail demands of customers), operators have become wholesale merchants; hence, the bank advised them to get forex from autonomous sources. This came against the backdrop of rent seeking activities of BDC operators in total disregard for the objectives upon which they were created as well as the challenges the Apex bank is currently facing with the fast depleting forex reserves. Consequent on this, Naira in the parallel market went to a high of N297.00/US$1.00 during the week having closed at N280.00/US$1.00 last week.
Notwithstanding this pricing in the parallel market, the CBN continued to exchange the local currency at N197.00/US$1.00 while interbank rates equally stayed at N199.10/US$1.00 on all trading days in the week. This calls for a quick response of the monetary authority given the huge margin between the official and parallel market rates. With foreign reserves at lows of US$28.7bn and oil prices at US$29.47/b, a compelling argument to devalue the naira at the next Monetary Policy Committee (MPC) meeting cannot be jettisoned.