Analysts at Financial Derivatives Company Limited, FDC, have anticipated that the Central Bank of Nigeria, CBN, will increase use of administrative measures in its quest to protect the naira following the massive pressure faced by the local currency in the parallel market.
These administrative tools are the cash reserve ratio (CRR) and Open Market Operations (OMO).
The CBN’s monetary policy committee (MPC), which is responsible for fixing interest rate and other monetary policy tools, would hold its meeting this Thursday, July 23 and Friday, July 24.
According to the report, the CBN has already reached the upper limit of its tightening cycle, predicting that a probable outcome at the MPC meeting would be for the CBN to maintain the status quo and use more administrative measures in preserving the forex reserves.
“Even though the CBN is committed to defending the naira, the currency pressures facing Nigeria are becoming more intense. The spread between the interbank rate and the parallel market creates an arbitrage corridor for speculators, and is now a round tripper’s paradise. Another issue that is of concern is the consistent decline in oil receipts as a result of falling oil prices, when the sanctions on Iran are finally removed,” it stated.
The report also noted that the aftershock of the CBN’s restriction of importers’ access to foreign exchange at the interbank and bureaux de change forex markets would be felt in the coming months.
