More Dollars Pump into Nigeria After CBN Lifts Forex Ban on 43 Items
- There was a spike in the availability of dollars since the CBN restored forex access to 43 items
- Analysts said the move by the CBN led to more than five times increase in liquidity
- According to a dealer, the bulk of the dollars came from outside the central bank
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To stop the 40% decline experienced in the naira this year, Nigeria's central bank removed limitations on purchasing foreign currency needed to import 43 products. The action has since caused a surge in the supply of dollars.
Chapel Hill Denham, a Lagos-based investment bank, reports that after the central bank's decision, liquidity at the investors and exporters window jumped more than five times to $407.7 million on Thursday.
On Friday, October 13, the parallel market saw the naira rise for the first time in three weeks, according to dealer Umar Salisu, who compiles the statistics.
Source: UGC
Tajudeen Ibrahim, head of research at Chapel Hill, said the announcement on Thursday is an indication that the central bank wants to be more frequent in its intervention, which will moderate the rate in the parallel market.
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He said the supply was mainly from sources outside the central bank. He added that central bank supply is also expected to increase.
Dollar demand continues to rise
Since declining oil revenues put its foreign exchange reserves in danger, Africa's largest producer of crude has been working to increase the flow of dollars.
To achieve this, the nation stopped selling foreign money to importers of goods, including rice, vegetables, and chicken, as a result, hoping to boost domestic output.
But a Bloomberg report showed the action did nothing more than shift demand for dollars in the black market. Friday's unofficial market saw a 0.3% increase in the naira to 1,042 to the dollar, according to Salisu.
The decision by President Bola Tinubu to permit the currency to trade more freely assisted in a brief fusion of the official and black market rates.
Due to excessive demand on the parallel market and insufficient official dollar supply, the spread expanded again in August.
To increase foreign investors' confidence, the central bank wants to eliminate the parallel market premium of 27% over the official rate of 759.20 naira to the dollar.
According to Ibrahim, the ability of the nation to accumulate dollars will determine the central bank's ability to win over investor confidence and stabilize the market.
He said:
“If there are no inflows to the central bank and the government from crude oil sales and borrowing, then we may see the intervention dissipate faster than expected.”
Data shows CBN defended naira with over $5 billion in six months
Legit.ng reported that to maintain stability in the exchange rate, the CBN sold $5.78 billion of the forex market in the first half of 2023.
This represents a 26.84% drop compared to the $7.90 billion net sales recorded at the end of June 2022.
CBN disclosed this in its half-year financial market activity report released on its website on Tuesday, October 10, 2023.
Source: Legit.ng
