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Forex: CBN introduces longest Naira-settled Forwards contract

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By Babajide Komolafe, with agency report

CBN
CBN

In a bid to reduce demand pressure in the foreign exchange market, and enhance dollar inflow into the economy, the Central Bank of Nigeria (CBN) yesterday introduced the longest Naira-settled Forwards contract.

The 5-year contract, priced at N379.81 per dollar, is longest tenor since the CBN introduced the Naira-settled forex Forwards market in June 2016.    The longest tenor prior to this move was a 13-month contract, which the CBN  has offered for more than a year.

The CBN has kept the naira stable even as oil prices drop and foreign investors took profits on local bonds in response to falling yields. The CBN operates a multiple exchange rate regime that it has used to manage pressure on the currency.

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The naira has come under pressure this year as importers demand dollars to feed Nigeria’s consumers and as market sentiment worsen by fears that the coronavirus outbreak would hit Chinese demand, one of Nigeria’s major trading partners, and dampen growth.

CBN Governor, Mr. Godwin Emefiele last month assured  that no adjustment of the naira was planned and that the bank would continue to sustain the value of the currency, even though its dollar reserve was shrinking.

The nation’s external  reserves declined to $36.68 billion as of Feb. 10, down 12.4 percent  from a year earlier, CBN    data showed on Thursday, as the bank burns through its dollar savings to support the naira.

The bank now has sixty contracts outstanding from 13 earlier, traders said, underscoring the pressure to attract inflows and to boost reserves. The contracts trade on the FMDQ OTC Securities Exchange.

Nigeria has also floated the idea of tapping the Eurobond market this year to raise up to $3 billion.

On the forwards market, the naira for one-year delivery was quoted at N399.73 against the dollar.

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