The Central Bank of Nigeria (CBN) has taken a significant step in the foreign exchange market by selling up to $30 million in the spot FX market, marking its first dollar sale in the market since September 2023. According to sources familiar with the matter speaking to BusinessDay, the CBN conducted the sale at a rate as low as N1490 per dollar, with each bank securing between $2-5 million.
The decision to resume dollar sales in the spot market represents a notable shift in the CBN’s approach to managing foreign exchange demand. Previously, the CBN had frozen dollar sales in the spot market to address a backlog in foreign exchange demand, which was eroding investor confidence in the apex bank’s currency reforms.
“Rather than fix rates, the CBN called banks to bid freely and that’s good for the market,” one source commented to BusinessDay. Another source emphasized the positive impact of the CBN’s presence in boosting trading liquidity in the market.
However, analysts caution that the CBN must conduct the sales professionally and consistently to fully leverage the benefits of this 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 source remarked.
The Nigerian naira experienced a record low on Monday, reaching 1,534.39 per dollar at the official foreign exchange market as demand outstripped supply. Governor Olayemi Cardoso highlighted the importance of addressing the backlog, stating that the CBN’s forward contracts alone owed $2.2 billion, as revealed in an interview earlier this month.
The resumption of dollar sales by the CBN signals a potential shift in the dynamics of Nigeria’s foreign exchange market. As the CBN takes steps to address the backlog and boost liquidity, market participants will closely monitor developments for further insights into the trajectory of exchange rates and the overall stability of the currency.