CBN sells dollars to BDCs at N1,251/$1 while the value of the naira rises.

 

Bureau De Change operators (BDCs) have received a circular from the Central Bank of Nigeria alerting them that $10,000 has been sold to each BDC at a rate of N1,251/$1.

Each BDC is directed to sell the dollars to qualified clients at a rate not to exceed 1.5% above the purchase price, according to a circular obtained by Nairametrics.


This indicates that BDC sales are not anticipated to exceed N1,269/$1.

"We refer to our correspondence with you about the aforementioned matter, as stated in reference TED/DIR/CON/GOM/001/071, in which the CB authorized a second round of FX sales to qualified BDCs.
We are writing to let you know that $10,000 has been sold to each BDC at a rate of N1,251/$1. The BDCs will offer their products at a spread that isn't greater than 1.5% over the buying price.
This attests to the dollar sales to BDC operators having resumed following a protracted pause by the central bank in 2021.

After the licenses of more than 4173 BDC operators were revoked in February of this year, the restriction was removed earlier in the year.

Nairametrics' investigations show that after closing at N1,431/$1 on Friday, the exchange rate on the parallel market dropped below N1,400/$1, with the quoted NAFEX rate standing at N1,382/$1.

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What this implies
Nairametrics calculates that more than $15 million may have been sold into the retail end of the market, with an estimated 1,500 BDC licenses left. Prior to Nigeria was predicted to have 5,689 licenses revoked.

The restart of forex sales to BDCs suggests that the central bank is putting more of an emphasis on improving liquidity in the FX market's retail segment.
Prior to Emefiele's tenure, when the exchange rate was set, price arbitrage was a major factor in the ban on forex sales to operators.
The apex bank, however, feels that operators no longer have a motive to engage in arbitrage by buying at reduced rates from the CBN and selling at higher rates in the parallel market as the exchange rate is now "market-determined" under the new currency system.
The central bank wants to provide liquidity in order to stabilize the foreign exchange market, reduce the difference between official and parallel market prices, and decrease exchange rate volatility in the end.

It is anticipated that this tactic will increase retail and small-business access to forex, resulting in a more open and effective market.

Nairametrics predicts that if the effects of increased liquidity are maintained, the Naira may strengthen considerably more in the near run. The expected increase in MPR rates when the CBN MPC publishes its communiqué on Tuesday lends even more credence to this prediction.