Oil price fall: CBN halts dollar sale to save Naira slide

Oscarline Onwuemenyi 11 November 2014, Sweetcrude, Abuja – The Central Bank of Nigeria (CBN) announced yesterday that it has frozen the sale of dollars to certain importers at its regulated foreign exchange market. This move is designed to save the fast-falling value of its local currency, the Naira.

The Central Bank will no longer sell dollars to importers of finished products, electronics, telecommunication equipment and invisible transactions at its Retail Dutch Auction system forex market. Such transactions will now be funded at the Interbank forex market only.
According to the circular, signed by the Director, Trade and Exchange Department of the apex bank, Mr O.I Gbadamosi, the new directive is aimed at ensuring stability in the foreign exchange market as well as bolster monetary policies.
CBN corporate HqIt stated that, “In order to maintain the existing stability in the foreign exchange market and further strengthen the various policies already initiated by the CBN, the importation of the items shall henceforth be funded from the Interbank foreign exchange market only.”
According to industry analysts, this is set to reduce pressure on the naira amidst falling oil prices and possible dollarization of the economy.
The CBN has reduced the remunerable daily placements by banks and discount houses at the Standing Deposit Facility. The current maximum for all deposits is $45.3billion.
This review seeks to encourage banks and discount houses to offer loans to productive sectors of the economy.
CBN Governor Godwin Emefiele in an attempt to raise governments’ confidence had said that the bank is working in concert with government to develop monetary and fiscal policies to ensure Nigeria is not negatively affected by the falling oil prices.
But, Nigeria’s efforts to prop up its currency months before presidential elections are being undone by the slide in oil prices.
According to a report by Bloomberg, the naira tumbled to within 0.3 per cent of a record low as Brent crude fell to the lowest level in more than four years.
It said while some of the world’s biggest banks think the collapse in oil is just about over, further losses would force Africa’s largest producer to choose between raising interest rates, eroding foreign-exchange reserves or, eventually, devaluing the currency, according to Exotix Ltd., a London-based investment bank.
“We’re getting close to the point where the alarm bells are ringing loudly,” Angus Downie, the head of economics research at Ecobank Transnational Inc. in London, said.
“If oil prices continue to slide before the election, foreign-exchange reserves will come under pressure, and that’s when the authorities would be expected to adapt fiscal and monetary policy to the new oil-price regime.”
A weaker currency would boost the cost of importing everything from fuel to food, threatening support for President Goodluck Jonathan, who’s already under pressure for failing to stem deadly attacks by Islamist militants.
The Central Bank of Nigeria has supported the naira since mid-September by using its reserves to sell dollars outside of twice-weekly auctions, according to Standard Chartered Plc. At those auctions, it offers the local currency at a price of 155 per dollar, plus or minus three per cent.
The naira is weaker than that in the open interbank market. It fell to 165.83 per dollar on October 13, the lowest level since it reached a record 168.9 on February 20. The currency dropped 0.1 per cent to 165.52 per dollar as of 2:32 pm in Lagos, the lowest level on a closing basis since February 25.
While the intervention helped prevent the currency from being among the worst performers in emerging markets this year, reserves are starting to erode, falling to $39.3 billion last week from almost $39.7 billion in early September.
About the Author