CBN Moves to Boost Naira Against USD, Sells $30 Million in Spot Market for First Time in 5 months

• The Central Bank of Nigeria has sold up to $30 million on the spot foreign exchange market on Tuesday morning
• Sources said that the apex bank sold the dollars for as little as N1490/$ each to various Nigerian banks
• Industry watchers said the move will strengthen local currencies if the CBN is consistent with the act

Legit.ng journalist Zainab Iwayemi has over 3-year-experience covering the Economy, Technology, and Capital Market.

For the first time since September 2023, the Central Bank of Nigeria (CBN) sold up to $30 million on the spot foreign exchange market on Tuesday morning, February 13th.

Investopedia defines a spot market as where financial instruments, such as commodities, currencies, and securities, are traded for immediate delivery.

The recent move by the central bank represents an effort to stabilise the naira, which is among the currencies with the worst performance globally, by 2024.

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The CBN had suspended dollar sales at the spot market to address a backlog in foreign exchange demand that was eroding investor confidence in the central bank's most recent currency reforms.

N1490/$ each to banks

According to those with knowledge of the situation who spoke with BusinessDay, the CBN sold the dollars for as little as N1490/$ each, with each bank securing between $2 and $5 million.

“Rather than fix rates, the CBN called banks to bid freely, and that’s good for the market,”

a source told the agency.

Another source familiar with the matter said,

“CBN being back in the market is highly commendable, as its presence will boost trading liquidity.”

Analysts, however, told BusinessDay that for the CBN to benefit fully from the most recent action, the sale must be handled consistently and competently.

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“This is step one; the next step is to establish a pattern for the sales, and then the exchange rate trajectory will begin to change,”

one of the sources said.

Additionally, the CBN is advised to be focused on clearing the backlog entirely.

In an interview last month, Governor Olayemi Cardoso estimated that the CBN owed $2.2 billion in forward contracts.

Charles Abuede, a financial analyst, told Legit.ng,

"I think that the challenge in managing forex backlogs suggests potential volatility in the exchange rate, affecting trade and economic stability.

"Whichever response the CBN adopts to these liquidity issues may necessitate adjustments in interest rates, impacting inflation and overall economic performance."

Meanwhile, demand outstripped supply on Monday, causing the naira to drop to a record low of 1,534.39 per dollar at the official foreign exchange market at the official market.

Legit.ng reported that this represents a 3.93% fall, or N58, compared to the N1,476.13/$ it closed last Friday.

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Also, CBN data revealed the same story for the Naira against the Pound Sterling and the Euro in the official market.

Nigerians abroad can no longer send USD.

Legit.ng reported that the international money transfer operators will no longer allow Nigerians abroad to send money home in foreign currency.

This obeys the Central Bank of Nigeria's revised guidelines on international money transfer operations.

The CBN instructed that banks begin paying dollars and other foreign currency payouts from abroad in naira to boost forex supply.

Source: Legit.ng