Speaking at the Monetary Policy Committee, MPC, meeting held last month, Deputy Governor, Central Bank of Nigeria, CBN, Corporate Services, Alhaji Barau Suleiman disclosed that the withdrawal of funds by foreign portfolio investors was responsible for the aggravated demand for foreign exchange last year.
He noted, “The aggravated demand for foreign exchange (for transfers/Letter of Credit valid) that we have seen in 2013 is largely in the area of invisibles which has increased by 23.8 per cent from 24 per cent ($13.3 billion) to 48.2 per cent ($26.1 billion) during corresponding period in 2012.”
The withdrawal of foreign portfolio investments from the country was attributed to a number of factors slowing down of quantitative easing (increasing money supply via bond purchase ) by the United States Federal Reserves, concerns about the appointment of a new CBN Governor and decline in the nation’s external reserves.
This was reflected in the communiqué issued at the end of the MPC meeting, which stated, “The MPC also noted the reduction in portfolio inflows driven by the commencement of the QE3 tapering by the Fed, transition concerns at the CBN and continued depletion of the ECA, thus dampening investor confidence.
The reduction of the US stimulus especially, could in addition, trigger capital flow reversals and put greater pressure on the naira exchange rate.”
Meanwhile the nation’s external reserved declined further by $10 million last week, falling to $43.12 billion as at Tuesday from $43.22 billion the previous week. Cumulatively, the external reserves have declined by $490 million dollars, from $43.61 billion at the beginning of the year.
Last year, it rose from $45.98 billion in January to a peak of $48.85 billion before falling steadily to $43.61 in December.
On the other hand, the CBN last month continued its effort to defend the naira by selling $2.939 billion through the Retail Dutch Auction System (RDAS). This represents 49.7 per cent increase when compared with the $1.99 billion sold in December.
Last year, the apex bank sold $25.37 billion, up by 32.9 per cent from $19.1 billion sold in 2012. The amount sold in January represents 39.3 per cent increase when compared with the average monthly foreign exchange sales for last year, which was $2.11 billion.
Despite the sharp increase in foreign exchange sales, the naira however depreciated at the interbank foreign exchange market by N3.64 in January. Data from the Financial Market Dealers Quote (FMDQ) revealed that the interbank foreign exchange rate rose from N158.84 per dollar on January 2nd to close at N162.48 per dollar last week.
Similarly the naira depreciated by five kobo at the official market, as the official exchange rate etched up to N155.75 at the end of the month from N155.7 at the beginning of the week. But the naira appreciated by N5 at the parallel market courtesy of the removal of limit imposed on foreign exchange sales to bureaux de change by banks.
This prompted the parallel market exchange rate to fall to N168 per dollar from N173 per dollar at the beginning of January.
*Babajide Komolafe – Vanguard