The Central Bank of Nigeria (CBN) sold $142,646,892.01 to 15 commercial banks and three merchant banks last week, as it sought to meet the huge demand for foreign exchange (forex) in the economy.
The amount was higher by $11,891,598, compared with the $130,755,294.59 the central bank sold to 14 commercial banks, four merchant banks and the Bank of Industry (BoI) in the preceding week.
Returns on forex utilisation published by the various financial institutions last week showed that FirstBank Nigeria Limited with $14,899,306.08 received the highest forex allocation during the week.
FirstBank sold the greenback to 681 customers – individuals and corporates. Its customers purchased the dollars for the importation of industrial raw materials, payment of school fees for students studying abroad, as well for personal travelling allowance.
In all, Dangote Sugar Refinery Plc which purchased $3 million from the bank to import industrial raw materials (raw sugar cane), was its biggest customer.
Just like the preceding week, Stanbic IBTC which was allotted $14,819,606.31 took the second spot. It sold the greenback to 136 customers, which was dominated by foreign portfolio investors exiting the equities, bonds and money markets.
The United Bank for Africa Plc (UBA) held on to the third position with total forex allocation of $14,273,105.90. UBA sold the greenback to 249 customers, of which Dangote Group got $5 million. Other big customers of the bank were Eterna Plc, which purchased $2,199.562.14 and IATA which bought $1.5 million for ticket sales remittance.
Diamond Bank Plc came in fourth with total forex allocation of $13,206,833.90. The bank sold the dollars to 247 customers. Its biggest customers during the week were Dangote Cement Plc – $3 million, Rahamaniya Oil and Gas – $1,609,812.93, and the Standard Metallurgical Company Limited which got $1 million.
Zenith Bank Plc was allocated $12,268,372.08 to occupy the fifth place, while Guaranty Trust Bank Plc with $10,843,993 which it sold to 228 customers, came in sixth.
All Eyes on MPC
But as the central bank continues to ration dollars to end users in the economy, all eyes will be expected to turn on the CBN again this week as its MPC starts its two-day meeting today.
The meeting of the MPC is coming on the heels of data released last Friday by the National Bureau of Statistics (NBS), showing that Nigeria in the first quarter of 2016 recorded its worst economic contraction in 25 years with a gross domestic product of -0.36 per cent from 2.11 per cent recorded in the fourth quarter of 2015.
The NBS also said the unemployment rate climbed to 12.1 per cent in the first quarter of this year, compared to 10.4 per cent in fourth quarter of 2015 and 9.9 per cent in the third quarter of 2015.
Also, the Consumer Price Index (CPI) for April 2016 released recently put inflation rate at 13.72 per cent, which is far above the central bank’s target band of between 6 and 9 per cent.
Although the global benchmark Brent crude price stood at $48.70 a barrel as at Friday, the renewed attacks on oil installation in the Niger Delta has cut oil exports to a 22-year low of under 1.4 million barrels per day, presenting a big challenge for the government which is struggling to shore up its earnings.
In addition, Nigeria’s external reserves have depreciated year-to-date by $2.390 billion, to $26.588 billion as at May 19, 2016 as against $28.978 billion at the beginning of the year.
At the last MPC in March this year, the committee defied all known economic principles for a contracting economy by raising the benchmark Monetary Policy Rate (MPR) to 12 per cent from 11 per cent.
It also increased banks’ Cash Reserve Ratio (CRR) to 22.5 per cent from 20 per cent, in a move aimed at tightening liquidity, which the central bank blamed for the pressure observed in the forex market. The MPC however kept liquidity ratio unchanged at 30 per cent.
However, as the MPC starts its meeting today, experts have stressed on the need for its members to press the right buttons that would support growth and save the economy from sliding into recession.
An economy is considered to be in recession when it records negative growth rates for two consecutive quarters.
According to economists, should the central bank ease monetary policy, the move would help to stimulate the economy by encouraging households and companies to borrow and spend more and will help to push up the prices of financial assets.
Speaking in a phone interview with THISDAY, the CEO of Financial Derivatives Company Limited, Mr. Bismarck Rewane said: “This is crunch time for the Nigerian economy.”
He advised the MPC members to “carry out an introspective analysis of what they have been doing and come to terms with the shortcomings of their previous decisions”.
“The MPC has to be courageous to make the choice between growth and inflation. At this point in time, what is more damaging is weakness and contraction of the economy rather than price pressure. At this point in time, growth should be the priority,” Rewane added.
Renaissance Capital, in its report released at the weekend, stated that following hike in the price of petrol, there is high probability of a change in forex policy review at the MPC meeting.
“We are less clear on what form forex policy may take going forward, as strong views on the subject imply there may have to be a compromise. We think the exchange rate of N285/$1 used to arrive at the petrol price ceiling of N145/litre suggests a two-tier exchange rate may be a possibility.
“We assign a higher probability (60 per cent) to a second official exchange rate being announced, than of outright naira devaluation in the official interbank market (25% probability). In the two-tier case, the fixed rate of NGN199/$1 may apply to essential imports, and capital transactions and luxury goods, may be left to a managed float that trades about N250/$1,” they added.
