CBN Removes ±2.5% Limit on Interbank FX Transactions

The Central Bank of Nigeria has removed the ±2.5 per cent cap spread on interbank foreign exchange transactions.

The CBN disclosed this in a circular dated February 8, 2024, signed by the Director, Financial Markets Department, Dr. Duke Omotunde.

The circular notes that restrictions on the sale of interbank proceeds have also been removed.

The document stated that, “the directive is in line with the objectives of the CBN’s current FX market reforms, which is to promote a “market-based price discovery system.”

On August 9, 2023, the CBN directed an exchange rate cap spread of ±2.5 per cent of Nigerian Autonomous Foreign Exchange Market previous day’s closing rate, for International Money Transfer Operators and banks.

It disclosed this in a circular referenced TED/FEM/PUB/PC/001/006 issued on August 9, 2023,

On January 31, the CBN released another circular removing the exchange rate cap for IMTOs.

This move by the apex bank aims to liberalize the market in order to allow the market to move in line with current market realities.

The circular reads,“A key objective of the ongoing foreign exchange market reforms by the Central Bank of Nigeria to promote a market-based price discovery system.

“Consequently, the Bank hereby discontinues any cap on the spread on interbank foreign exchange transactions and restrictions on the sale of interbank proceeds.

“Authorized Dealers are to continue to conduct their foreign exchange transactions on a “Willing Buyer and Willing Seller” basis. In addition, they are to strictly adhere to high ethical standards in their dealings in the foreign exchange markets. This includes but not limited to adopting appropriate price disclosures and transparency for transactions.

“Please note that all executed transactions are to be recorded immediately on the relevant treasury systems and reported to market authorities as stipulated. the document stated.

The implication of the CBN’s decision is that, authorised dealers in the inter-bank FX market would be able to sell the proceeds from the market with Bureau De Change operators as well as other willing buyers outside the market.