CBN Intervenes To Stabilise Interbank Currency Market

Less than two weeks after slashing the Net open Position of banks, the Central Bank of Nigeria (CBN) has again raised the figures from one per cent to three per cent. The CBN announced the cuts in the NOP on October 10 after huge demands for dollars were putting pressure on the supply side.

The Net Open Position is the ratio of dollars banks can hold relative to shareholders’ funds. The central bank slashed net open positions to one percent from five per cent but traders complained the interbank forex market was almost brought to a halt by the decision. The naira closed lower at the interbank on Friday, trading at N159.30 from N154.60 the previous day. A total of $546.912 million dollars were sold at the official window last week.

“The current limit has been increased from one per cent to three per cent of the net shareholders’ fund with effect from Monday October 24, 2011,” the central bank said in a circular to lenders.

Traders said the move to raise the NOP would restore stability at the interbank currency market.
“It is good as it will help the interbank to trade. What it means is that banks can now hold up to three per cent of their shareholders fund overnight and that is good for the market,”? a bank Treasury officer said. He said that the earlier decision to reduce the NOP almost resulted in the shut down of the interbank market last week. ?

Consequently, the CBN also announced that it would henceforth, make more interventions as it plans to sell dollars directly at the interbank market.

In a circular to authorised dealers on Thursday, the regulator stated that it would either buy or sell at the interbank while also supplying at the official bi-weekly auction in order to sustain stability in the interbank market.

Following the huge unmet demand, the CBN took measures to reduce speculative demand for dollars including the exclusion of certain categories of petroleum product importers from accessing dollars through the official market. It also barred foreign firms that want to repatriate their funds out of the country from accessing such foreign exchange through the WDAS.