*Introduces new spread limit of N1…
The Central Bank of Nigeria (CBN) has banned authorized dealers at the foreign exchange interbank market from overnight holding of funds purchased at the market as well as denying them the option of further selling same funds to other authorized dealer. This is contained in a circular to all money deposit banks on Monday.
The CBN equally introduced a new spread limit of N1.00 on all interbank transactions in furtherance of its attempts to liberalise and boost liquidity in the currency market.
“Funds purchased by an authorized dealer from another authorized dealer, in the interbank market, shall not be held in position overnight by the buying authorized dealer or sold to another authorized dealer,” the circular signed by Alvan E. Ikoku, director, Financial Markets Department stated.
Such interbank purchases shall only be sold by the buying authorized dealers to its customers for permitted/eligible transactions as authorized in an earlier circular released in April, which established the Investors’ and Exporters’ (I&E) FX window.
The CBN also pegged all interbank transactions to a maximum spread of one naira, the CBN. A year ago, the bank had said the naira would trade with no pre-determined spreads. The new rules take effect immediately, said the statement.
The move, announced along side a series of other new regulations, according to currency traders, could help improve liquidity in its troubled foreign exchange market often marred by a gap between the official exchange rate and the parallel (black) market rate.
The circular also indicate that traders can buy hard currency from each other without its prior approval, which until now had been required.
All authorized dealers were ordered to report to the CBN, details (sources and applications indicating amount, counterparty, deal rate, etc) of all interbank sales/purchases by 4pm daily.
The nation’s currency, the naira, currently exchange for 304.4800/$ at the interbank market as against over N400 at the parallel market.
The CBN has tried to close that gap by pumping dollars into the market since February. On Monday, the CBN injected $190 million to the foreign exchange market, bringing total amount so injected to about $5 billion, according to currency traders.
The latest injection included $100 million for wholesale, $50 million for small and medium enterprises and $40 million for business and travel allowances.
Currently the CBN operates at least seven exchange rates, including an official rate, one for religious pilgrims and a rate for foreign travel, school and medical fees.
