In the official foreign exchange market, the supply of dollars witnessed a significant increase, rising by 180.59% to $440.13 million on Friday. Amid a turbulent week, the naira closed at N1435.53/$, following a series of moves by the Central Bank of Nigeria (CBN) to stabilize the foreign exchange rate.
Data from FMDQ Security Exchange revealed a surge in forex turnover from $156.86 million on Thursday to $440.13 million on Friday. Beyond commercial banks, entities like the Central Bank of Nigeria, oil firms, and multinationals also contribute to dollar supply in NAFEM (Nigerian Autonomous Foreign Exchange Market).
The improved liquidity aligns with CBN’s efforts to enhance foreign exchange rate stability. The naira experienced intraday fluctuations, reaching a high of N1526/$ and a low of N838.96/$ before closing at N1435.53/$ on Friday. In the parallel market, the naira closed at N1,420/$, reflecting sustained demand for the greenback.
Last week, the CBN introduced new circulars and guidelines to boost liquidity and narrow the gap between parallel and official exchange rates. In a significant guideline, the CBN mandated banks to adjust their FX exposures, expressing concern about the increasing foreign currency positions held by banks.
The circular titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks” set a limit for banks’ Net Open Position (NOP) not to exceed 20% short or 0% long of the bank’s shareholders’ funds. Banks exceeding this limit faced a deadline of February 1, 2024, to comply. Industry insiders suggest that this move might prompt banks to sell approximately $5 billion.
An anonymous bank executive noted, “The CBN is saying that you cannot hold excess dollar liquidity. Any foreign exchange you are holding must be committed to something, a transaction, or an obligation you can prove.” The intention is to inject liquidity into the market, stabilize the exchange rate, and attract foreign investors.
Simultaneously, S&P Global Ratings affirmed Nigeria’s ‘B-/B’ long- and short-term foreign and local currency sovereign credit ratings, maintaining a stable outlook. The stable outlook is based on the government’s commitment to its reform agenda, which, if implemented, could support growth and fiscal outcomes. S&P Global Ratings anticipates limitations on the rise in Nigeria’s FX reserves due to costly imports and the clearance of FX arrears.
