The Central Bank of Nigeria (CBN) has taken decisive action to stabilize the foreign exchange market by injecting $122.67 million into the market, spread across 46 authorized FX dealers. This strategic move aims to curb volatility and support market stability, especially as the naira recently hit its lowest exchange rate since March 2024, closing at N1,554.65/$1.
In a statement signed by Dr. Omolara Duke, Director of Financial Markets at the CBN, the central bank highlighted its commitment to maintaining a stable forex market. The sales were conducted over two days, with $67.5 million sold to 27 dealers on Wednesday and $55.17 million sold to 19 dealers on Thursday.
Breakdown of Forex Sales
On Wednesday, the CBN sold $67.5 million to 27 authorized dealers, while purchasing $2.5 million from one dealer. The bid range for these transactions was between N1,480/$1 and N1,500/$1, with payments scheduled for July 12, 2024, following a two-day settlement cycle.
On Thursday, $55.17 million was sold to 19 authorized dealers at a rate of N1,540/$1, with no forex purchases recorded for that day. Payments for these transactions are due on July 15, 2024.
The CBN emphasized the importance of using the foreign exchange purchases for trade-backed transactions. Dealers are required to report these transactions within 72 hours to ensure compliance and proper utilization of the funds. This approach is designed to enhance market liquidity through FX spot sales using two-way quotes.
Surge in FX Turnover
The official forex market experienced a notable increase in turnover on Wednesday and Thursday. On Wednesday, FX turnover surged by 25.78%, reaching $236.7 million, up from $188.19 million the previous day. The surge continued on Thursday with a 47.37% increase, bringing the total to $348.82 million.
Market Implications
This significant forex sale by the CBN comes amid a challenging period for the naira, which recently breached the N1,500 mark and approached N1,600. In May, the naira saw consecutive double-digit appreciation in the official market as the CBN sold more dollars in anticipation of a $1.3 billion non-deliverable forward (NDF) maturing on May 29, 2024.
According to sources, the CBN reverted to its previous strategy of selling foreign currency below the market rate to artificially lower the exchange rate. Following the recent forex sales, the naira broke a three-day depreciation streak on Thursday, closing at N1,554.65/$1.
The naira is expected to appreciate further in the official market today, bolstered by the recent influx of dollars from the CBN’s forex sales.
