The official foreign exchange market witnessed a staggering 180.59% increase in dollar supply, soaring to $440.13 million on Friday.
The naira’s closing rate at N1435.53/$ marked the end of a tumultuous week, with forex turnover spiking from $156.86 million on Thursday, according to data from FMDQ Security Exchange.
Beyond commercial banks, the Central Bank of Nigeria, oil firms, and multinationals played key roles in this surge of liquidity within the Nigerian Autonomous Foreign Exchange Market (NAFEM).
The move is attributed to the Central Bank’s efforts to stabilize the foreign exchange rate, exemplified by the naira’s rollercoaster ride between an intraday high of N1526/$ and a low of N838.96/$ before settling at N1435.53/$.
Last week, the apex bank issued circulars and guidelines aimed at enhancing liquidity and narrowing the gap between parallel and official exchange rates.
In a directive titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” the CBN expressed concern about banks accumulating substantial foreign currency positions, setting a deadline of February 1, 2024, for compliance.
A confidential source within the banking sector revealed that the new circular would compel banks to offload around $5 billion. The executive explained, “The CBN is saying you cannot hold excess dollar liquidity anymore. Any foreign exchange you are holding must be committed to something, a transaction, or an obligation you can prove.”
Banks are diligently working to meet the CBN’s new requirements, anticipating that selling excess dollars will inject liquidity into the market and stabilize the exchange rate, potentially attracting foreign investors.
Meanwhile, S&P Global Ratings affirmed Nigeria’s credit ratings and maintained a stable outlook, citing the government’s commitment to its reform agenda as a key factor. The rating firm projected that costlier imports and the clearance of FX arrears would temper the increase in the country’s foreign exchange reserves.