The Central Bank of Nigeria (CBN) has taken a significant step to stabilize the foreign exchange market by selling $122.67 million to 46 authorized dealers.
This move is aimed at promoting market stability and reducing volatility as the exchange rate closed at N1,554.65/$1 on Thursday, the lowest level since March 2024.
This is according to a statement signed by Dr Omolara Duke, the Director in charge of Financial Markets at the CBN.
The statement read: “The Central Bank of Nigeria (CBN) has sold the sum of US$122,671,000.00 (One Hundred and Twenty-Two Million, Six Hundred and Seventy-One Thousand United States Dollars) to 46 authorised dealers in its determination to promote stability and reduce market volatility in the foreign exchange market.”
Breakdown of sales
According to the statement, the sales were made on Wednesday and Thursday this week.
- On Wednesday, the apex bank sold $67.5 million to 27 authorized dealers, while purchasing $2.5 million from one authorized dealer. The bid range for these transactions was between N1,480/$1 and N1,500/$1. Payments for these transactions are scheduled for July 12, 2024, following a two-day settlement cycle (T+2).
- Also, on Thursday, the CBN sold $55.17 million to 19 authorized dealers at a rate of N1,540.0/$1. No foreign exchange was purchased on this date. The payments for these spot sales are due on July 15, 2024.
Use FX for trade-backed transactions, CBN tells dealers
The CBN further urged all authorized dealers to ensure that foreign exchange purchases from the bank are exclusively used for trade-backed transactions, which must be reported within 72 hours.
The statement noted that the CBN supplies foreign exchange to the market through FX spot sales to authorized dealers using two-way quotes, aiming to improve liquidity.
Nairametrics observed that there has been a consecutive increase in FX turnover in the official market on Wednesday and Thursday.
FX turnover on the official market surged by 25.78% on Wednesday, hitting $236.7 million, from $188.19 million recorded the previous day.
The surge was more pronounced on Thursday when it increased by 47.37% to $348.82 million.
What you should know
These sales from the CBN come at a time when the exchange rate has broken through the N1,500 ceiling towards N1,600 recently.
In May, the naira experienced consecutive double-digit appreciation on the official market, with sources saying that the CBN sold more dollars on the official market in anticipation of a $1.3 billion non-deliverable forward (NDF), which matured on May 29, 2024. According to sources with knowledge of the matter who spoke with Nairametrics in May, the apex bank reverted to its previous strategy of selling foreign currency below the market rate, hoping to artificially lower the exchange rate.
Following the latest sales by the CBN, the broke a three-day depreciation streak on Thursday to close at N1,554.65/$1.
The naira is expected to further appreciated today, Friday, on the official market as an after-effect of the CBN’s FX sales.