CBN to reverse monetary policies

The Central bank of Nigeria, CBN, has decided to review the series of controls it instituted in the last few months, both in the monetary and foreign exchange market developments.

The decision was reached by members of the Monetary Policy Committee, constituting the CBN Governor, Deputy Governors, top members of staff, and Chief Executive Officers of banks, in their recent meeting held last Thursday.

According to a statement released by the CBN, the committee noted that there was a need to address the problem of excess liquidity in the system, without putting pressure on interest rates.

Concern over variance in rates

The Monetary Policy Committee noted that even though exchange rates have remained stable at both the official and the parallel market rates for some months, the wide discrepancy between the official and parallel market rates still persist.

According to Charles Soludo, the Central Bank Governor, although the medium term outlook for the Foreign Exchange Market is stable, “the committee has decided to review the series of controls instituted in the last few months, and over the next three months, return to the fully liberalised regime that we had before the recent controls.”

“We believe that the premium between the parallel and official exchange rates will narrow significantly in the days ahead and we can sustain the changes over time. The CBN is also exploring the possibility of introducing futures and swaps in the foreign exchange market.”

Reverse Duration

Mr. Soludo said that it would take the next three months “to return to the regime of fully liberalized foreign exchange market.” As part of the measures towards the return to Wholesale Dutch Auction System, the committee members have decided to increase the Net Open Position for banks from 1.0 to 2.5 percent with immediate effect, while keeping in view the possibility of raising it further at the end of June 2009.

“Banks are no longer mandatorily required to sell to the CBN after 5 days the funds sourced from non-RDAS and non-oil export proceeds and may use such funds for interbank transactions. The CBN will now participate in the interbank foreign exchange market at the prevailing rate,” Soludo stated in the communiqué.

The committee has also decided that from June 1, 2009, Retail Dutch Auction System will be twice weekly, as against the daily auction it is currently running.

Approval granted to BDC’s

Following the restructuring of the bureaux de change in March 2009, the Central Bank stated that it has also granted an Approval-in-Principle, to 50 non-bank class A bureaux de change. The list of the BDC’s will be published this week.

“As from next week, (week beginning from 25th May, 2009) about US$60 million will be sold to the BDC’s per week. The BDC’s are expected to sell at retail rate of not more than 2.0 per cent above the CBN selling rate,” Soludo stated.

Government Agencies and Oil companies will have the discretion to sell foreign exchange at the interbank foreign exchange market or to the CBN with effect from May 25, 2009.