CBN re-enters spot FX market with $30m sale to strengthen Naira

By Sodiq Adelakun

In a strategic move to stabilise the Nigerian currency, the Central Bank of Nigeria (CBN) re-entered the spot foreign exchange market on Tuesday with a significant sale of $30 million, marking its first direct intervention since September of the previous year.

This initiative is part of the apex bank’s ongoing efforts to shore up the naira, which has been struggling as one of the globe’s weakest currencies in 2024.

Insiders close to the operations disclosed that the CBN conducted the sale at rates as competitive as N1,490 to the dollar, with allocations ranging from $2 million to $5 million for each participating bank.

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

This approach marks a shift from the bank’s previous policy, as it allowed banks to bid freely rather than setting fixed rates, a move that is seen as beneficial for the market’s dynamics.

The CBN’s decision to resume dollar sales at the spot market comes after a period of suspension aimed at addressing a backlog of foreign exchange demands.

This backlog had been a point of concern, eroding investor confidence and casting doubts on the effectiveness of the bank’s currency reforms. Market participants have lauded the CBN’s return to the spot FX market, noting that its active presence is expected to significantly enhance trading liquidity.

The bank’s latest actions reflect a commitment to implementing measures that support the naira and, by extension, the broader Nigerian economy.

The CBN had frozen dollar sales at the spot market in order to deal with a foreign exchange demand backlog that was undermining investor confidence in the apex bank’s latest currency reforms.

“CBN being back in the market is highly commendable, as its presence will boost trading liquidity,” another source familiar with the matter said.

Analysts, however, say the CBN needs to conduct the sale professionally and consistently in order to reap the full gains of the latest move.

“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.

The naira on Monday fell to a record low of 1,534.39 per dollar at the official foreign exchange market as demand trumped supply.

The CBN was also urged not to lose sight of completely clearing the backlog. Governor Olayemi Cardoso put the dollars owed by the CBN in forward contracts alone at $2.2 billion in an interview this month.