Business
CBN auction raises hope of fx stability amid sustainability concerns
Nigeria’s currency, the naira, is expected to see some gains in the coming weeks following renewed determination of the Central Bank of Nigeria (CBN) to promote stability and reduce volatility in the foreign exchange market.
The latest of these moves was the apex bank’s intervention in the foreign exchange market on Friday by selling the sum of $122.67 million to 46 authorized dealers.
Experts say the intervention will reduce demand pressure on the forex market by making more liquidity available, while also strengthening the naira, but call for sustainability of the effort.
A statement signed by Omolara Duke, CBN’s Director in charge of Financial Markets, disclosed that of the total sales, $67,500,000.00 was sold to 27 authorized dealers, while the sum of $2.5 million was bought from one authorized dealer on July 10, 2024.
The range of the bid for the July 10, 2024 sales was N1,480.0/$-N1,500.0/$, while the value date for the payments, going by the settlement cycle of two days (T+2), is July 12, 2024.
Similarly, on July 11, 2024, the sum of $55.17 was sold to 19 authorized dealers at N1,540.0/$, and no FX was purchased. The value date for the payments of the spot sale is July 15, 2024.
The statement, therefore, urged all authorized dealers to ensure that foreign exchange purchases from the CBN are used exclusively for trade-backed transactions, which should be reported within 72 hours.
While reiterating that the CBN supplies foreign exchange to the foreign exchange market to improve liquidity through FX spot sales to authorized dealers using two-way quotes, it assured that the bank will continue to ensure stability in the FX market.
The apex bank had suspended supply to the BDCs since March, a forex sales break that saw the naira depreciate further to N1,563.80 at the official market on Friday.
However, last week, Nigeria’s external reserves increased yet again, reaching $35.05 billion as of July 8, 2024, the first time it has crossed the $35 billion ceiling under the administration of President Bola Tinubu, according to data from CBN.
The country’s reserves are boosted by the latest rounds of loans the Federal Government got from the World Bank. In May, the Bureau of Public Enterprises disclosed that the Federal Government had secured a $500m World Bank loan to bolster the country’s electricity distribution sector. Also, the World Bank revealed that the country would get $2.25bn support to enable it stabilize the economy.
“This combined $2.25bn package provides immediate financial and technical support to Nigeria’s urgent efforts to stabilize the economy and scale up support to the poor and the most economically at risk. It further supports Nigeria’s ambitious, multi-year effort to raise non-oil revenues and safeguard oil revenues to promote fiscal sustainability and provide sufficient resources to deliver quality public services,” the multilateral lender stated in a statement.
Last year, the country struggled with a shortage of dollars, which forced the central bank to float the naira, to increase foreign exchange inflow. The local currency has, thereafter, depreciated by over 300 percent in one year to 1,514.31/$ at the Nigerian Autonomous Foreign Exchange market on Friday.
According to a Bloomberg report last month, the naira emerged as the worst-performing currency in the world in the first half of 2024. It noted that devaluation, insufficient dollar liquidity, and market volatility had hindered efforts by the CBN to strengthen the currency.
Two weeks ago, the apex bank announced that International Money Transfer Operators (IMTO) could now have access to the official window to sell forex.
In a circular signed by the acting Director of the Trade and Exchange Department, Dr. W.J Kanya, the apex bank said that the measure would enable IMTOs to access naira liquidity at the official window, thus, enabling timely settlement of diaspora remittances.
Also, early this month, the CBN announced that international oil companies (IOCs) can sell their retained 50 per cent of repatriated export proceeds in the Nigerian forex market.
This decision comes after the apex bank placed limits on the transfer of crude export proceeds by IOCs to offshore parent company accounts on February 14. The CBN noted that these transfers affected domestic foreign exchange market liquidity and sought to reverse the trend through ongoing reforms.
Providing more clarifications, the apex bank said the “50% balance of the repatriated export proceeds may be sold to Authorized Dealers or eligible users of foreign exchange with eligible transactions”.
“If the IOC does not have any financial obligation to settle with the funds during or after the 90-day retention period, the 50% balance may also be sold wholly as stated in (1) above.”
Calling for sustainability
Reacting to the latest CBN intervention in forex market, Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE) said, “It is supposed to strengthen the naira. The naira stability is a function of demand and supply. In recent days, the naira seems to have come under pressure. This is likely to moderate the pressure.
He said what is important is the consistency and sustainability of the intervention. “We need to generate that confidence in order to prevent people from speculating against the naira. The naira stability is very important. So, I think it is a good thing that they intervened,” Yusuf further said.
Similarly, Ayodele Akinwunmi, senior relationship manager, corporate banking group, FSDH Merchant Bank, said the impact on the naira will be positive.
“We expect that it will enhance the value of the naira in subsequent weeks. Supply to the market should not be one-off. It will likely lead to sustained appreciation in the value of the naira,” he said.
However, the naira closed the week with 0.58 loss as the dollar was quoted at N1,563.80 on Friday compared to N1,554.65 quoted on Thursday at the NAFEM, data from the FMDQ Securities Exchange Limited showed.
The dollar supplied by willing sellers and willing buyers declined by 63.73 percent to $126.50 million on Friday from $348.82 million recorded on Thursday. The intraday high closed at N1,586 on Friday as against N1,590 closed on Thursday, while the intraday low printed at N1,496.46 on the same day from N1,465 on Thursday.
At the parallel market, popularly called black market, the naira closed at N1,560, losing 0.32 percent compared to N1,565 closed on Thursday.