SAT, 05 DEC, 2020-theGBJournal- During the course of the week, the Central Bank of Nigeria disclosed it intends to introduce special bills as part of efforts to deepen the financial markets and avail the monetary authority with an additional liquidity management tool.
According to the CBN, the features of the CBN special bills are: a tenor of 90 days; zero-coupon; CBN determined yield at issuance; tradable among banks, retail and institutional investors; unacceptable for repurchase agreement transactions with the CBN; non-discountable at the CBN window.
This is another attempt by the apex bank to achieve the dual objective of managing system liquidity and supporting money flows to the real sector without injecting fresh liquidity. However, we note that it remains unclear whether the special bills will trade pari-passu with existing treasury bills.
Meanwhile, in what can be regarded as a move aimed at narrowing the spread between the I&E window and parallel market rates, the Central Bank of Nigeria (CBN) released a circular amending the procedures for receipts of diaspora remittances.
In the circular seen by theGBJournal, CBN stated that beneficiaries of Diaspora Remittances through International Money Transfer Operators (IMTOs) shall henceforth receive such inflows either in foreign currency cash or in their domiciliary accounts.
The apex bank further noted that IMTO’s must remit all funds in favour of beneficiaries into the Agent Banks’ correspondent account. The policy action of the CBN is well-timed given the high demand for the greenback in the parallel market – we believe this is due to the inability of manufacturers to get sufficient dollar liquidity from official sources ahead of year-end festivities.
In the short term, we expect the pressures on the local currency in the parallel market to dissipate as the increased flexibility on diaspora remittances will likely support dollar liquidity. Over the medium to long term, we believe there is the need for improved dollar supply and or further adjustment in the naira peg at official windows to eliminate the differential between I&E window and parallel market rates.
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