The Central Bank of Nigeria’s recent reforms have resulted in a significant increase in foreign exchange supply, with the forex turnover at the official market reaching $11.43 billion over a span of two months, according to investigations conducted by The PUNCH.
An analysis of daily forex transactions on the FMDQ Securities website, which publishes official foreign exchange trading data in Nigeria, reveals a remarkable surge of 185.75% or $7.43 billion between January and March 15th through the Nigerian Autonomous Foreign Exchange by Deposit Money Banks.
The primary sellers of forex at the Nigerian Autonomous Foreign Exchange Market (NAFEM) include commercial banks, the Central Bank of Nigeria, and international oil firms.
This improved liquidity at NAFEM was the result of a directive issued by the Central Bank on February 1, 2024. The directive compelled banks to sell their excess dollar stock within 24 hours to enhance liquidity in the foreign exchange market.
Officials at the central bank believe that certain commercial banks have been holding long-term foreign exchange positions to profit from the volatile movements of exchange rates.
While the naira reached an all-time low of N1,850/$ in the parallel market, economists and stakeholders have approved the move to unify the official and parallel market exchange rates.
However, they have urged the Central Bank of Nigeria to address the backlog of foreign exchange, estimated to be over $5 billion, and provide sufficient funding for forex demands in the official market. This measure is crucial in preventing a divergence between the parallel market rate and the official rate.
Further analysis of the dollar supply data indicates that the forex market recorded a turnover of $4 billion in January, which increased by $3.3 billion within two weeks (from February 2 to 16) after the implementation of the new rules.
In the subsequent weeks, the supply stabilized, recording a flow of $890.65 million between February 19 and 23. This figure rose to $953.02 million in the week ending February 26 to March 1.
Between Monday, March 4, and 8, the market witnessed a gain of $1.07 billion in forex turnover, but it decreased to $848.14 million last week (March 11 to 15).
Moving forward, it is expected that the naira will experience further stabilization this week due to a decrease in demand pressure, coupled with a decline in dollar supply.
On Monday, the naira made a marginal appreciation against the United States dollar, closing at N1,572.86 in the official market compared to N1,602.43 recorded on the previous Friday.
On the spot, the intraday high stood at N1,640/$ on Monday, lower than the N1,615.50 per dollar recorded on Friday. Additionally, the intraday low depreciated to N1,400 from N1,524.99 on Friday.
The daily forex market turnover also experienced a 2.19% increase, reaching $140.45 million on Monday, compared to the $137.43 million recorded on Friday.
The previous week concluded on a positive note for the foreign exchange market, as the naira strengthened against the dollar in both the official and parallel markets.
Last week, the naira appreciated by 0.95%, with the dollar quoted at N1,602.75 on Friday, stronger than the N1,617.96 quoted on Monday at the official foreign exchange market, according to data compiled from the FMDQ Securities Exchange.
On Monday, the local currency was traded between N1,600 and N1,610 in the parallel market, depending on the location. This followed a flat closing of N1,605 on Friday, a 0.31% drop compared to N1,610 on Monday, as reported by various street traders and trading platforms.
