Banks can deepen round-tripping with latest CBN forex policy—Expert
Whereas many analysts have welcomed the latest monetary policy of the Central bank of Nigeria (CBN) which now presents money deposit banks (MDBs) with the opportunity of giving out or holding back foreign exchange as they may dim it, leading finance pundit, Dr. Ken Igboanugo has called for surveillance on the side of the apex banks.
In a telephone interview, he said “Going by the new policy, commercial banks have been made a small god in the administration of forex in Nigeria, meaning that they can give who they want to give and deny who they wish without fear from the CBN”.
Business Hilights noted that the CBN, rather than float the Naira, it decided to boost the supply side by releasing more forex into the market, but through commercial banks only.
According to Igboanugo, “With the new policy, banks can access as much forex as they want and supply just as much as they want”.
He was however quick to observe that “In a situation where commercial banks are totally law-abiding, this would mean less complaints from customers, increased trade volume etc. However, with the appeal of accessing as much as they like, the temptation to engage in round-tripping and forex hoarding to indirectly manipulate the market has never been higher. The power now lies in their hands”.
“For some of the banks that are secretly suffering from the shock of the Treasury Single Account policy of the federal government which drained a sizable chunk of the liquidity ratio, they may resort to round-tripping using fronts after all.
He called on the apex bank to deploy strict monitoring of how the MDBs are running the new policy to avoid causing more harm than good to the ailing economy and monetary space of the economy.
Besides, analysts at Nairametrics say there are strong indications that based on the latest forex policy announced by the CBN, it can be a pointer towards floating the Naira.
The CBN has been hesitant to float the exchange rate in part too scared to upset the President, who hates to hear the word devaluation. The CBN, like other government agencies is also fixated with a control and hold policy that ensures market forces continued to be avoided from determining the price of goods and services deemed ‘sensitive’ by the government.
Nairamatics argued that the first sign was the CBN confirming that “All banks would receive amounts commensurate with their demand per week.” We interpret this to mean that, there will no longer be a cap on how much FX banks can buy from the CBN. Everything will not be determined by the demand from the primary market and the likely supply available from the CBN
Besides, the CBN also used the phrase “competitive exchange rates” in imploring banks to settle FX demands from their customers. This suggests that bank are being encouraged to sell rates at market determined prices even though they still forced a 20% margin to the interbank rates.
The clearest indication that this was a likely step towards a market driven forex regime was its statement about its plans to increase efficiency of the FX market.
Firstly it claimed that it will “clear all the unfilled orders in the interbank FX market”
It also said that it will no longer impose allocation/utilization rules on commercial banks, which suggest that the 60/40 rule has been abandoned
It also said it was planning to “Implement an effective intervention programme to support the inter-bank market to ensure adequate liquidity necessary to deliver an efficient FX market.” That was perhaps the clearest indication after all.
