Exchange rate gains tied to $1.3bn maturing NDFs, CBN’s interventions
The naira has experienced consecutive double-digit appreciation on the official market, and sources say that the Central Bank of Nigeria (CBN) has been selling more dollars on the official market in anticipation of a $1.3 billion non-deliverable forward (NDF) maturing today Wednesday, May 29, 2024.
On Monday, the exchange rate between the naira and the dollar saw a significant appreciation of 10.71 percent, closing the day at N1,339.33/$1 on the Nigerian Autonomous Foreign Exchange Market (NAFEM) window.
This appreciation marked the highest closing rate since April 26, when the exchange rate was N1,339.23/$1, based on data from FMDQ. It was also the biggest currency appreciation rate in two months since May 20 when it recorded a rate of 12.84 percent.
However, the foreign exchange (FX) turnover decreased sharply by 67.50 percent, amounting to $180.8 million on Monday.
By Tuesday, there was a significant surge in FX turnover, which increased by 81.59 percent to $328.32 million as the apex bank sold more forex on the market.
The naira also surged to N1,1173.88/$1 on the NAFEM window, marking an increase of 14.09 percent from the previous day’s rate. This is the highest one-day increase since January 2024.
According to sources with knowledge of the matter who spoke with newsmen, the Central Bank of Nigeria (CBN) has reverted to its previous strategy of selling foreign currency below the market rate. This move is aimed at artificially lowering the exchange rate.
The sources, fearing victimisation, requested to remain anonymous.
The push for a significant appreciation was tied to the maturing $1.3 billion NDF today as the CBN “needs to lower the reference rate to reduce payout.”
According to data from the FMDQ, the $1.3 billion NDF makes up about 82 percent of the total NDFs open contracts ($1.58 billion) as of May 24, 2024.
The sources added that the CBN will likely “manage” the rate a lot lower today, Wednesday, May 29, as a way to celebrate the one-year anniversary of the president of Nigeria, Bola Tinubu.
Confirming what sources told us, the Chairman of Skymark Partners Limited, Egie Akpata, “What contributed to the appreciation was the significant amount of central bank’s dollar sales on Monday and Tuesday.”
He noted that if the central bank continues the sale of dollars as they did on Monday and Tuesday, there is a possibility of maintaining the naira appreciation.
Providing further specifics on the interventions, a Private Wealth Advisor for a Lagos firm, Damilola Alonge, told Nairametrics that said, “The apex bank intervened at the NAFEM twice yesterday. The first round of intervention was about $3 million and the second round at $2 million.”
He added that successful bids were within N1,260 and N1,320 for the first intervention on Tuesday, while the second intervention was between N1,160 and N1,250.
On Monday, he disclosed that CBN intervened in two tranches with $2 million sold. The interventions were around the rates of N1,380 and N1,400 while the second intervention was around N1,310 and N1,370.
The total intervention size on Monday was estimated to be around $80 million on Monday and $97 million.
However, our sources said that the total intervention was around $200 million.
Alonge added that this intervention is yet to have much impact in the parallel market, where the naira still sold for about N1,400. yesterday.
Recall that the Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, said that the bank has no intention to defend the naira.
He stressed that there were no future intentions to defend the currency with the external reserves, as it was counterintuitive since the apex bank was already implementing a willing buyer, willing seller policy.
However, although it seems the apex bank has paused selling foreign exchange to Bureau de Change (BDC) operators, it appears that it is yet to step down from intervening in the official market to defend the naira.
