The Central Bank of Nigeria (CBN) intervened in the foreign exchange market for the first time in five months, to provide some liquidity and reduce pressure on the local currency.
The apex bank sold up to $86 million in the spot FX market yesterday, its first sale of dollars in the market since September 2023.
The CBN’s intervention is coming after the naira fell to a record low of 1,534.39 per dollar on Monday at the official foreign exchange (FX) as demand increased amid shortage.
It is the apex bank’s latest attempt to stabilise the naira, one of the world’s worst-performing currencies in 2024.
The CBN sold the dollars at a rate as low as N1,490 per dollar, with each bank securing between $2-5 million, sources familiar with the matter told Business Day.
“Rather than fix rates, the CBN called banks to bid freely, and that’s good for the market,” a source said.
The CBN had frozen dollar sales at the spot market in order to deal with a foreign exchange demand backlog that was undermining investor confidence in the apex bank’s latest currency reforms.
“CBN being back in the market is highly commendable, as its presence will boost trading liquidity,” another source familiar with the matter said.
Analysts, however, say the CBN needs to conduct the sale professionally and consistently in order to reap the full gains of the latest move.
“This is step one; the next step is to establish a pattern for the sales, and then the exchange rate trajectory will begin to change,” one of the sources said.
The naira on Monday fell to a record low of 1,534.39 per dollar at the official foreign exchange market as demand trumped supply.
The CBN was also urged not to lose sight of completely clearing the backlog.
CBN Governor Olayemi Cardoso put the dollars owed by the CBN in forward contracts alone at $2.2 billion in an interview this month.
The figure of how much dollars CBN has sold was updated to $86 million as of 1:30pm from $30 million this morning.
After trading on Monday, naira lost 4.19 per cent of its value as one dollar was quoted N1,534.39 as against N1,469.97 quoted on Friday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), data from the FMDQ showed.
The Naira also depreciated by 1.33 per cent at the parallel market, also known as black market. The dollar traded at the rate of N1,505 on Monday compared with N1,485 on Friday.
“There is scarcity of dollars on the black market as the Central Bank of Nigeria (CBN) has blocked the areas where we source dollars,” one street trader said on Monday.
According to the latest country report from the International Monetary Fund (IMF), Nigeria’s foreign reserves are projected to experience a notable decline, plummeting to $24 billion by 2024.
This forecast has raised concerns about the economic prospects of Africa’s largest economy, indicating potential challenges on the horizon.
Nigeria’s foreign currency reserves have declined to $3.11 billion as of February 8, 2024, according to the data obtained from the CBN’s website.
In a recent circular issued on January 31, 2024, the Central Bank of Nigeria (CBN) introduced revised guidelines affecting inbound money transfers to the country.
The new directives place stringent restrictions on International Money Transfer Operators (IMTOs) and aim to regulate the flow of funds into Nigeria more closely.
According to the circular, all inbound money transfers to Nigeria facilitated by IMTOs will now be exclusively paid in naira. This payment can be made either through a recipient’s bank account or in cash, with the conversion rate being determined by prevailing rates in the Nigerian Foreign Exchange Market.
Furthermore, the CBN has specified that transfers exceeding the naira equivalent of $200 must be credited directly to the recipient’s bank account. For transfers below this threshold, recipients will still have the option of receiving the funds in naira cash, but they must provide acceptable means of identification.
Acceptable forms of identification include an international passport, driver’s licence, national identity card, or the INEC Permanent Voter’s Card.
Significantly, the revised guidelines also restrict IMTOs from facilitating outbound transfers, effectively limiting their operations to inbound transactions only.
These regulatory changes represent a concerted effort by the CBN to enhance oversight and control over the inflow of funds into Nigeria, with the aim of promoting transparency and accountability in the financial system.
The implementation of these stricter guidelines underscores the CBN’s commitment to ensuring the integrity and stability of the Nigerian financial landscape, while also addressing concerns related to money laundering, illicit financial flows, and currency stability.
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