CBN makes first forex intervention in 2020 with $253m
Mops up N411b via OMO, interbank rates spike
Inflation, payment system 2020 outlook varies
The Central Bank of Nigeria (CBN), at the weekend, made its first foreign exchange (forex) intervention for the year, with $253.38 million, under the retail Secondary Market Intervention Sales (SMIS) and CNY16.76 million in the spot and short-tenored forwards segment of the inter-bank foreign market.
The development may have marked the take-off of the 2020 forex intervention efforts of the apex bank, aimed at supporting the monetary policy objectives that are challenged by the weak fiscal environment and low domestic productivity, leading to huge importation.
The Director, Corporate Communications Department, Isaac Okorafor, who disclosed this, said the intervention was for requests in the agricultural and raw materials sectors.
The Chinese Yuan, on the other hand, was for Renminbi-denominated Letters of Credit.
Okorafor further expressed satisfaction over the stability of the foreign exchange especially during the yuletide and New Year celebrations, which according to him, was largely due to sustained intervention by the bank.
He assured that CBN would remain committed to ensuring that all the sectors of the market continue to enjoy access to the needed forex
Meanwhile, the local currency remains stable around N360 per dollar at the Bureau de Change (BDC) segment of the foreign exchange market, while the Chinese Yuan is exchanged at N46.
CBN Governor, Godwin Emefiele, had listed the bank’s priorities in 2020 to include support for greater economic growth, price stability, and low inflation, hinting the continued tight monetary policy stance of and the establishment of a new scheme tagged: “Bankers’ Charitable Endowment Fund.”
He said despite the positive growth the economy experienced, the pace of growth had remained slow due to “some structural constraints” in the economy and given Nigeria’s growing population, exposure to shocks from the oil price and sentiments in the global financial markets.
“Though we will act to appropriately adjust the policy rate in line with unfolding conditions and outlooks, the CBN will continue to ensure that the policy interest rate is delicately set to balance the objectives of price stability with output stabilization,” he explained.
On the country’s External Reserves, the Governor said the Bank’s effort at supporting domestic production in the agriculture and manufacturing sectors among other policies, had continued to encourage foreign exchange inflows into the Nigerian market.
According to him, over $60 billion worth of transaction had taken place since the inception of the Investors’ and Exporters’ window in April 2017, adding that Nigeria’s foreign exchange reserves are still high, compared to $23 billion in the same period in 2016.
Similarly, the interbank rates received a nudge up at the weekend, as the transactions closed with the money market instruments like the Overnight call trending at 10.71 per cent, representing a 6.29 per cent rise. Also, the Open Buy Back rate rose by six per cent to close at 9.71 per cent.
The rise in the money market rates was triggered between Wednesday and Thursday, as outflows from the Open Market Operations (OMO) auction by the apex bank, worth N411.14 billion, negatively impacted the quantity of money in circulation.
But analysts at FSDH Research said: “We expect the money market rates to move in tandem with system liquidity going forward.”
At the OMO auction on Thursday, the CBN bills worth N411.14 billion were sold across the 89-day tenor (N100 million) and 362-day tenor (N411.04 billion).
The stop rate for the 362-day tenor at 13.25 per cent, cleared lower by one basis point when compared to the previous auction, and the 89-day tenor closed at 11.48 per cent.
Nigeria would soon get the December inflation numbers from the National Bureau of Statistics, but the 11-month trajectory up till November 2019, is still raising concerns among analysts and consumers, especially, the 2020 outlook.
Inflation started trending downwards in the first quarter (Q1) and Q2 of 2019, but assumed a reversal mode in Q3, as CBN’s restriction on food-related imports started putting pressure on local food prices and other manufacturing inputs.
Worse still, the closure of land borders, as a foil to smuggling and heightened insecurity in the country, stoked panic buying, as well as supply shortage.
According to Proshare analysis, inflation, which started 2019 at +11.37 per cent in January fell to +11.22 per cent at the end of Q2 2019, and by July, the aggregate price level growth had slowed to +11.02 per cent, raised optimism that CBN would by Q2 of 2020, be within its target band of between six per cent and nine per cent.
“Unfortunately, the CBN’s move to tighten the noose on importers of food and related-products by denying them access to the official foreign exchange market added to the rise in the price of food.
“Food inflation grew faster than the general headline inflation rate throughout 2019. Food inflation rose from +13.51 per cent in January 2019 to +13.56 per cent at the end of Q2 2019 and fell slightly by +0.05 per cent to +13.51 per cent at the end of Q3 2019.
At the end of 2019, food inflation worsened and rose to +14.48 per cent in November.
The highlights of the Q4 2019 Consumer Expectations Survey (CES) showed that consumers’ overall outlook was positive for the next quarter (Q1 2020) and the next 12 months.
However, the majority of consumers believe that the next 12 months would not be an ideal time to purchase big-ticket items like motor vehicles and houses, among others, as most respondents expected the naira to remain unchanged, while the inflation rate will rise, and borrowing rate will also fall.
The major drivers of the expected upward movement in prices are food and other household needs, savings, purchase of appliances/consumer durables, education and purchase of houses, and purchase of car/motor vehicle.
Perhaps, one of the brightest points in 2020, will be the evolving payment system landscape, which just took off with price slashes in the cost of banking and financial services.
But initial skepticism is still high over the strict compliance by banks and payment system service providers.
Since January 1, 2020, a graduated fee scale for electronic transfers to replace the current flat fee of N50 began, as transfers below N10,000 now attract a maximum charge of N10; transfer from N5001 – N50,000, N25; and transfers above N50,000, N50
Card maintenance fee on the current account has been removed as the accounts already attract maintenance fees. Savings accounts now attract a card maintenance fee of N50 per quarter (three months) from N50 per month. Yearly card maintenance fee on foreign currency denominated cards is reduced to $10 from $20.
Remote-on-Us, that is, Automated Teller Machine (ATM) charges after third withdrawal from other banks’ machines within a month are reduced to N35 from N65. The charge for hardware token will be on a cost-recovery basis subject to a maximum of N2,500 from the previous maximum charge of N3,500, while the fee for SMS mandatory alert will be on cost recovery from the previous maximum charge of N4. Bill payment via e-channels will attract a maximum charge of N500 from 0.75 per cent of the transaction value subject to a maximum of N1,200.
The apex bank said the revision of the Guide to Charges and strengthening of the Consumer Protection Regulation was necessitated by continued evolution in the financial industry over the past few years, which has spurred innovation and the introduction of new products, channels and/or participants.
The Bankers Committee, led by Emefiele, has said they are now fully aware of the risk associated with their business as it relates credit and operations and ready to take on the challenges.
According to them, Cyber risk, which today, is growing in different parts of the world, calls for the banks, the CBN, and the government, to do something about it, particularly in the areas of management and control.
“The banks will now invest more money in tools, whether soft or hardware, that will help them in containing cyber risks in their operational environment.
“Of course, on the part of the CBN, we have all along been issuing different guidelines and frameworks on how the banks can combat cyber attack and how the industry and the country can combat the incidence of cyber attacks, which in any case, will continue.
“But we just need to prepare so that when the criminals strike, we would be able to withstand the shock or be able to discover it early enough for the banks not to lose money or for depositors funds not to be lost,” Emefiele said.
He pointed out that the apex bank is also looking at investing in a security operations center, which will act as a gateway, not only for banks.
“Unfortunately, we are all naked today as a result of the Internet and cyber and we all have to do everything to protect ourselves,” he added.