“Dollars Are Scarce in Market”: Naira to Appreciate as CBN Pumps in Over $1.3bn
- The CBN settled over $1.3 billion in foreign currency last week, igniting a positive view about the local currency
- According to analysts, this means less pressure on the naira, which will eventually lead to the recovery of the local currency
- This is a part of the CBN's effort to increase liquidity and aid in the naira's recovery on both the official and black markets
Legit.ng journalist Zainab Iwayemi has over three years of experience covering the Economy, Technology, and Capital Market.
Analysts forecasted that the naira will strengthen in the upcoming months, as the Central Bank of Nigeria (CBN) settled over $1.3 billion in foreign currency (forex) forward contracts last week.
Source: UGC
According to analysts at Rand Merchant Bank in Lagos, the settlement leaves an outstanding FX forwards contract with an estimated $198 million in unpaid balances between now and December.
The Nation reported that less forex pressure will be applied to the naira due to the decreased volume of unsettled forex contracts, which will assist in recovering the local currency.
CBN takes actions
The CBN has persisted in taking specific actions to increase dollar liquidity and aid in the naira's recovery on both the official and black markets in recent times.
The bank recently authorised International Oil Companies (IOCs) operating in Nigeria to sell 50% of their forex revenues at the local forex market, a part of a significant drive to increase the availability of foreign exchange in the economy.
Hassan Mahmud, the CBN's director of the Trade & Exchange Department, issued a circular to authorised dealer banks that reiterated the previous instruction to the IOCs to pay half of the currency proceeds immediately back to their home countries and the remaining half after ninety days.
But, during the allotted ninety days, the remaining fifty per cent of the repatriated funds might now be utilised to pay local debts whenever needed.
Additionally, the top bank mandated that all authorised dealers only provide debit or credit cards—as alternatives to cash—to its clients for Personal and Business Travel Allowances (PTA/BTA).
The bank said,
“In line with the Bank’s commitment to ensure transparency and stability in the foreign exchange market and avoid foreign exchange malpractices, All Authorized Dealer Banks shall henceforth effect payout of PTA/BTA through electronic channels only, including debit or credit cards. For the avoidance of doubt, payment of PTA/BTA by cash is no longer permitted.”
Samuel Oyekanmi, a research and insight associate with Norrenberger Financial Group
"I agree clearing the FX backlog is a necessary move and is a welcomed development."
Importers seek alternatives
The official foreign exchange market and the black markets are becoming less and less reliable sources of the money importers need.
Read also
“We see a gradual depreciation”: Fitch speaks on new naira projection after CBN clears debt
Demand for Form A applications for Business Travel Allowance (BTA), Personal Travel Allowance (PTA), school fees, and medical payments is being driven by legitimate needs.
Evidence from the use of Form Q depicted that Small and Medium Enterprises (SMEs) are also struggling with scarcity.
One street trader disclosed,
“The problem is that dollars are scarce in the market. People are not bringing dollars and demand is so high that is why the price is going up.”
Nigeria finally pays off debt to airlines
Legit.ng reported that Nigeria has paid 98% of the airlines that have funds stuck in the country and has requested the final clearance of the remaining 2%, the International Air Transport Association (IATA).
According to IATA Director General Willie Walsh in a This Day report, the amount of airline funds that governments are preventing from being repatriated has decreased overall by 28%.
He estimated that the entire amount of blocked money at the end of April 2024 was around $1.8 billion, a decrease of $708 million (or 28%) from December 2023.
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Source: Legit.ng
