In a surprising turn of events, the official foreign exchange market witnessed a 180.59 percent surge in dollar supply, reaching a remarkable $440.13 million on Friday.
The naira closed the week at N1435.53/$, concluding a turbulent week that saw forex turnover skyrocket from $156.86 million on Thursday, according to data from FMDQ Security Exchange.
Apart from commercial banks, the Central Bank of Nigeria, oil firms, and multinationals contributed to the increased liquidity by selling dollars at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
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This uptick aligns with the Central Bank’s efforts to stabilize the foreign exchange rate, showcasing a notable improvement.
The apex bank’s recent circular, titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” played a pivotal role in this development. Expressing concern over the escalating foreign currency exposures of banks, the CBN ordered them to adjust their FX exposures. A top bank executive, speaking anonymously, disclosed that the circular could prompt banks to sell approximately $5 billion.
The CBN’s directive mandates that banks’ Net Open Position (NOP) must not exceed 20 percent short or 0 percent long of the bank’s shareholders’ funds.
The February 1, 2024, deadline looms for those who have surpassed this limit. The move aims to curtail the practice of holding excess dollar liquidity without a committed purpose.
The impact of this policy shift is already in motion, as banks are actively working to meet the new requirements. The expectation is that selling excess dollars will inject liquidity into the market, stabilizing the exchange rate and attracting foreign investors.
In related news, S&P Global Ratings affirmed Nigeria’s credit ratings, maintaining a stable outlook. The global rating firm cited the government’s commitment to its reform agenda as a key factor supporting growth and fiscal outcomes.
However, projections suggest that costlier imports and the clearance of FX arrears may limit the rise in the country’s FX reserves.