In a bid to stabilize the Nigerian naira and enhance liquidity in the foreign exchange market, the Central Bank of Nigeria (CBN) executed its first sale of nearly $90 million in the spot FX market on Tuesday, marking its reentry into the market since September 2023, according to sources familiar with the matter.
Sources revealed to BusinessDay that the CBN conducted the sale at a favorable rate of N1490 per dollar, with a significant portion of the 34 participating banks acquiring between $2-5 million each.
The move is part of the CBN’s strategy to address the persistent challenges faced by the naira, which has been one of the weakest-performing currencies globally. A source noted that instead of fixing rates, the CBN allowed banks to bid freely, a move seen as beneficial for market dynamics.
The CBN’s decision to resume dollar sales in the spot market follows a freeze initiated to address a backlog in foreign exchange demand, which had been denting investor confidence in the apex bank’s currency reforms.
While the intervention signals a positive development, analysts emphasize the importance of consistent and professional conduct in subsequent sales to maximize its impact on the market.
The naira experienced a modest gain on Tuesday, reaching N1499/$, up from the previous day’s record low of N1,534.39 per dollar, as reported by FMDQ Securities Exchange.
This intervention is part of a broader effort by the CBN to enhance liquidity in the FX market and prevent significant disparities between official and black-market rates, which emerged after the naira’s free trading debut against the dollar last June.
Alongside resuming spot market sales, the CBN has implemented measures such as enhancing transparency in pricing, encouraging banks to offload excess dollars, and removing caps on transactions by International Money Transfer Operators (IMTOs) to attract diaspora remittances.
However, concerns linger regarding the CBN’s ability to fully clear the backlog of dollar obligations, with Governor Olayemi Cardoso citing outstanding forward contracts totaling $2.2 billion. Addressing these obligations is crucial for restoring investor confidence in the central bank and the naira.
Questions surrounding Nigeria’s external reserves persist, exacerbated by doubts raised by US-based JP Morgan regarding the accuracy of reported figures. The International Monetary Fund (IMF) has projected a potential record decline in Nigeria’s foreign reserves to $24 billion in 2024.
Despite denials from the CBN, skepticism remains regarding its reserve holdings, particularly amidst challenges in clearing overdue dollar obligations owed to investors and businesses. This uncertainty underscores the importance of transparent communication and proactive measures to bolster market confidence in Nigeria’s currency and economic stability.
