Nigeria’s currency saw a 6.43% decline in the official market as of July 2024, closing at N1608.73/$1.
The naira saw a four-month low in July, ranging from a low of N1,500.32 to a high of N1,621.12, which exceeded the N1,600 ceiling, according to FMDQ statistics.
The Central Bank of Nigeria (CBN) attempted to prevent illiquidity in the official market by selling dollars, yet the devaluation still happened.
FX turnover increased by CBN’s sales
As the naira was under intense pressure in July, the CBN made at least three sales of foreign exchange (FX) to authorized dealers and one sale to Bureau de Change (BDC) operators.
FX turnover on the Nigerian Autonomous Foreign Exchange Market (NAFEM) window last month was probably increased by the CBN’s support.
The research division of Nairametrics, Nairalytics, released data showing that foreign exchange turnover on the official market rose by 30% to $4.34 billion from $3.33 billion the previous month.
CBN sold $377.17 million to authorized Forex dealers
Circulars from the apex bank announcing the transactions state that the CBN sold $122.67 million to 46 authorized dealers during the same week of July.
Over the course of two days, the bank bought $2.5 million from one authorized dealer and sold $67.5 million to 27 other authorized dealers.
For these trades, the bid range was N1,480/$1 to N1,500/$1. Payments for these transactions are expected to be made on July 12, 2024, after a settlement period of two days (T+2). At a rate of N1,540.0/$1, the CBN sold $55.17 million to 19 authorized dealers on the second day. On this date, no foreign exchange was bought. On July 15, 2024, the payments for these spot sales are expected.
The CBN also asked all licensed dealers to make sure that any foreign exchange acquired from the bank is only utilized for trade-backed transactions, which need to be reported to the authorities within 72 hours.
The CBN announced the sale of $106.5 million in foreign exchange (FX) to 29 FX dealer banks the following week. The CBN sold $106.5 million to 29 authorized dealer banks on July 18 and 19, 2024, at exchange rates ranging from N1,498/$1 to N1,530.00/$1, and purchased $9.5 million from four authorized dealer banks at rates ranging from N1,510/$1 to N1,550/$1, according to a statement signed by Dr. Omolara Omotunde Duke, Director, Financial Markets Department.
The CBN also linked the normal summer rise and pressure on corporate demand to the recent changes in the foreign exchange market.
It claimed that to maintain market stability and guarantee liquidity, it has started conducting routine foreign exchange sales through licensed Bureaux De Change (BDCs) and Authorised Dealer Banks.
The top bank sold authorized dealers $148 million for the third FX sale. 29 Authorised Dealer banks purchased the foreign exchange at exchange rates ranging from N1,470.00/$1 to N1,510.00/$1.
In a significant move to support the naira, the CBN stated on Thursday, July 18, 2024, that it has approved the sales of foreign exchange to qualified BDCs in addition to authorized dealers.
The bank declared that each BDC will get $20,000 at a rate of N1,450/$1. This rate represents the bottom band of the NAFEM trading rate from the previous trading day.
The CBN’s sales occurred during a period of intense demand pressure on the naira.
What to note
The CBN promised to keep addressing the supply deficit in order to maintain market stability in its most recent statement, which announced the sale of FX to authorized dealers.
The CBN recently ordered authorised dealer banks to gather and submit a valid list of all outstanding FX demand in response to the growing unmet demand for FX by end users, according to a circular that The News Chronicles has not yet been able to verify. The purpose of this action is to lessen the negative effects of pressure from the foreign exchange market on the value of the naira.
It was mentioned that in order to relieve demand pressure and supply foreign exchange for qualified transactions, the CBN will hold a Retail Dutch Auction System (rDAS) on Wednesday, August 7, 2024.
