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Market volatility between one currency and another has claimed another casualty today, this time the closure by the Central Bank of Nigeria (CBN) of the twice weekly sale of FX through the retail Dutch Auction System (rDAS), and wholesale Dutch Auction System (wDAS) thus tactically devaluing the Nigerian naira.
The decision to cease this operation was taken following several months of facing the challenges posed by an ever widening margin between the naira at the official market and the interbank rate.
This has taken effect immdiately, and the central bank has directed that all foreign exchange order flow must be channeled to the interbank FX market.
In a statement issued and signed by the Director of Corporate Communications, Ibrahim Mu’Azu, Apex Bank (Apex Bank = African system for exchanging currency and network of rural banks) said it had taken the decision to close the official window to end the multiple exchange rate and also preserve the country’s dwindling external reserves.
“The Apex Bank noted that the wide gap between the official and interbank value of the naira had engendered undesirable practices, including round tripping, speculative demand, rent seeking, spurious demand and inefficient use of scarce foreign exchange resources by economic agents” stated Mr. Mu’Azu.
In view of this, Mr. Mu’azu in the statement, said, “It has become imperative that appropriate actions be taken to avert the emergence of multiple exchange rates regime and pressure the country’s foreign exchange reserves. Consequently, we wish to inform all authorised dealers and the general public that with effect from the date of this press release, the rDAS/wDAS foreign exchange window with the CBN is hereby closed. Henceforth all demand for foreign exchange should be channeled to the interbank forex market.”
In line with the various assurances of its governor, Godwin Emefiele, the Apex Bank said it would “continue to intervene in the interbank foreign exchange market to meet genuine/legitimate demand.”
In a report by Nigerian news source Leadership, according to the head of Research at Sterling Capital, Sewa Wusu, “the closure of the rDAS is a tactical move to bridge the gap at the various segment a of the market instead of announcing another round of announcing another round of devaluation. Thus the devaluation has been done through the closure of the rDAS.”
Mr. Wusu who spoke with Leadership in a phone interview said the move which he described as “bright and sharp” would curtail the sharp practices of banks which had continued to put pressure on the dwindling external reserves.
Also, the chief executive of Financial Market Dealers Association, Wale Abe noted that the CBN noted that the CBN had changed tactics after its previous efforts had not yielded the desired results.
“What the CBN did is a change of methodology. If a method is being inefficient, you can replace it with another. What is important is that supply should meet demands at the interbank”, he stated.
The overnight rate dropped to 21.8750 percent from Tuesday’s rate of 93.1250 percent, while 1month, 3months and 6months rates closed lower yesterday at 15.3283, 16.3092 and 17.1230 per cents from 17.0148, 18.1363 and 19.0292 per cents which it was on Tuesday.