By Chinwendu Obienyi
The Nigerian Autonomous Foreign Exchange Market (NAFEM) witnessed a remarkable surge in total foreign exchange (FX) turnover, reaching $1.03 billion last week. The significant increase was largely attributed to the strategic interventions by the Central Bank of Nigeria (CBN) directed at banks.
The figure represents a 40 per cent rise from the previous turnover of $740.92 million. According to data from FMDQ, this milestone marks the first time weekly FX turnover has surpassed $1 billion since the first week of June 2024, when it reached $1.05 billion.
FX turnover commenced at $122.31 million on July 1, 2024, and climbed to $133.5 million by July 8, reflecting a 9.11 per cent rise. The uptick indicated a slight increase in market activity early last week. However, the turnover subsequently declined by 11.8 per cent. By Thursday, total turnover had surged by 14.3 per cent to $943.29 million, with trades executed within the N1,465.00/$1 – N1,590.00/$1 range. The peak coincided with the second day of dollar sales by the apex bank.
Omolara Duke, the Director of Financial Markets at CBN, disclosed that the apex bank had sold $67.5 million, $55.17 million, and $122.67 million to 27, 19, and 46 authorized dealers, respectively, on Wednesday, Thursday, and Friday. The CBN further urged all authorized dealers to ensure that foreign exchange purchases from the bank are exclusively used for trade-backed transactions, which must be reported within 72 hours.
Additionally, Nigeria’s FX reserves expanded further this week, with gross reserves growing by $507.09 million week-on-week to $35.28 billion as of July 11.
Despite these interventions and positive developments, the naira depreciated by 3.5 per cent week-on-week to N1,563.80/$1 at NAFEM. The CBN sold $94.00 million at an average rate of N1,504.00/$1 to banks during the week.
In the forwards market, the naira rates decreased across various tenors: 1-month (-3.3 per cent to N1,588.23/$1), 3-month (-2.8 per cent to N1,640.70/$1), 6-month (-2.8 per cent to N1,725.39/$1), and 1-year (-2.5 per cent to N1,894.92/$1) contracts.
Market analysts reacted to these developments, noting that although market liquidity improved slightly due to the CBN’s interventions, it remained insufficient to drive significant appreciation in the naira as demand for FX continued to outstrip supply.
“Looking ahead, we expect the naira to remain under pressure due to the muted FX supply from the CBN and weak inflows from Foreign Portfolio Investors (FPIs),” they stated.
The naira had previously experienced consecutive double-digit appreciation at NAFEM, driven by the CBN’s increased dollar sales in anticipation of a $1.3 billion non-deliverable forward (NDF) maturing on May 29, 2024.
However, this recovery was not sustained, with the local currency hitting a new low this week. Analysts at Cowry Research attributed this weakness to increased demand for FX during the summer holidays, as many Nigerians travel abroad for vacations.
CBN Governor Olayemi Cardoso, speaking at the CEO Forum 2024 themed “Leadership in Economic Times” organized by Business Day Media, reassured the public that the local currency is now stable. He emphasized that the CBN is implementing market practices transparently and effectively.
Cardoso noted, “Addressing system distortions and clearing FX backlogs were crucial in restoring the apex bank’s integrity and market confidence. Initially, we encountered pushback when we began doing things the right way. Many market participants front-loaded their requests which were not met. Now they are confident because our actions in clearing FX backlogs have restored the apex bank’s integrity.”