BANKS HALT SALE OF AUTONOMOUS FOREX TO BDCS
BY BABAJIDE KOMOLAFE
Banks have suspended sale of autonomous foreign exchange to bureau de change (BDCs) in response to the maximum limit of $250,000 per week per BDC imposed by the Central Bank of Nigeria (CBN) last week.
Meanwhile, a BDC operator and Chief Executive, Bluewall BDC, Mr. Lucky Ayeidatiwa, has called on the CBN to increase foreign exchange supply to BDCs to bridge the demand gap caused by the limit on autonomous foreign exchange.
The naira, however, appreciated by 99 kobo at the Wholesale Dutch Auction System (WDAS) session held on Monday, as official exchange rate dropped to N152.64 per dollar from N153.63 on last week.
The appreciation was prompted by 31 per cent fall in demand for foreign exchange fell to $328m from $476m at the last session.
The apex bank offered $400m and sold $328m. This marked the first major appreciation of the naira at the official market for a long time, and foreign exchange operators attributed the appreciation and fall in demand to the limit imposed on autonomous foreign exchange sale to BDCs.
Last Friday, the apex bank imposed a $250,000 limit on the amount of autonomous foreign exchange that BDCs can buy from banks.
'Authorised Dealers (ADs) are only allowed to sell a maximum of $250,000.00 to BDCs per week and a BDC is allowed to purchase from only one Authorised Dealer per week', the CBN said in a circular.
The policy, however, prompted banks to suspend sale of autonomous foreign exchange to BDCs apparently in order to observe its impact on the market
A senior bank foreign exchange dealer confirmed this to Vanguard saying 'Everybody is studying the market to gauge the impact'.
As a result, autonomous foreign exchange was not available for BDCs to sell on Monday and Tuesday.
'Since Monday, banks have not given quote or sold autonomous foreign exchange. This has brought a lull in the market and BDCs have adopted a wait and see attitude', said Ayeidatiwa.
Foreign exchange operators said that the demand for autonomous foreign exchange by BDCs was huge and it has been the driving force behind the depreciation of the naira in the interbank market for some time.
They said the effectiveness of the limit is reflected in the 165 kobo appreciation of the naira at the interbank market on Monday where the interbank exchange rate dropped to to N154.285 per dollar at the close of business on Monday from N155.95 on Friday
The suspension of sale of autonomous foreign exchange by banks has, however, caused the naira to depreciate in the BDC/parallel market where it lost 50 kobo yesterday.
The BDC foreign exchange rate rose to 159.45 per dollar from N158.95.
Ayeidatiwa said that the CBN needs to increase weekly official sale of foreign exchange to BDCs through the Wholesale Dutch Auction System (WDAS) to check further depreciation of the naira in the BDC/parallel market.
He said that though the limit imposed by the CBN was well intentioned, it could lead to huge demand gap for foreign exchange in the BDC/parallel market.
He said when the CBN abolished Class A BDCs, who bought $1 million per week from CBN, there was demand gap in the market which was satisfied through autonomous foreign exchange purchased from banks.
He said in addition to this the liberalisation of the foreign exchange market in 2006 which led to the admission of BDCs into the official market has opened many channels of demand for foreign exchange in the BDC market most of which are met through autonomous foreign exchange from banks.
He said given the fact that the apex bank has severally reduced the amount of foreign exchange sold to BDCs from $300,000 per bidding session to $50,000 the BDC market has had to depend on the autonomous foreign exchange purchased from banks.
He said. 'Now that the CBN has limited the amount of autonomous foreign exchange that is available to BDCs, there would be huge demand gap in the market.
'These demands are always there and they won't go away. What will happen is that there would be pressure on the BDC/parallel market exchange rate which is not good for the economy.
'Though the policy was well intentioned with the objective of closing the gap between the official exchange rate and the interbank rate, it might lead to widening of the gap between the official rate and the BDC/parallel market rate.
'And to forestall this the CBN should increase foreign exchange sale to BDCs.'