In September 2024, the Central Bank of Nigeria (CBN) announced the sale of $543.5 million to authorized dealer banks at exchange rates between N1,540 and N1,580 as part of its efforts to stabilize the naira amidst high demand for foreign exchange (FX) driven by commodity imports and seasonal factors. This total sum translates to approximately N844.92 billion. The transactions were executed over 11 trading days, involving an average of 26 banks. The CBN indicated that the sales were structured using two-way quotes in the Nigerian Foreign Exchange Market, aiming to address the volatility that has emerged in the FX market due to increased demand.
Despite these significant sales aimed at bolstering the naira’s value, the currency only managed a modest appreciation of 2.77% against the dollar at the official market, ending September at N1,541. However, the naira depreciated dramatically in the parallel market, hitting N1,700 per dollar, highlighting the ongoing challenges within the FX market. The CBN communicated that this series of sales was conducted with a value date of T+2 (two days after the transaction), calling attention to the measures taken to mitigate market fluctuations and educate the public on FX pricing practices.
Amidst the prevailing economic challenges, the declining strength of the naira has prompted significant anxiety among consumers, as it impacts the cost of vital commodities. Since Olayemi Cardoso assumed the role of CBN Governor, the naira has lost more than half its value in just one year. Governor Cardoso has maintained that the CBN is striving to strengthen the naira, asserting that there is a connection between the disbursement from the Federation Account Allocation Committee (FAAC) and pressures on FX demand, indicating a proactive approach to scrutinizing fiscal flows as part of the currency management strategy.
In a positive indication for Nigeria’s financial health, foreign reserves exhibited an increase of nearly 5% in September, climbing from $36.24 billion at the start of the month to $38.058 billion by the month’s end. This uptick in reserves could be instrumental in enhancing the CBN’s capacity to manage the foreign exchange market and alleviate some of the pressure on the naira. The balance between foreign reserves and currency stabilization efforts illustrates the CBN’s strategy to provide a consistent supply of FX in the market.
A detailed breakdown of the CBN’s sales reveals varying amounts and exchange rates on specific trading days, reflecting a strategy responsive to market conditions. On various dates throughout September, the bank executed sales ranging from as little as $17.5 million to as much as $80 million, with rates fluctuating within the N1,530 to N1,605 range. Notably, the largest sales were recorded towards the end of September. This structured approach indicates the CBN’s attempt to carefully manage the supply of liquidity in the market while reacting to demand dynamics to avoid excessive volatility.
Overall, the efforts by the CBN underline the complex interplay of monetary policy, market forces, and external financial pressures confronting Nigeria. The bank’s commitment to providing FX through controlled sales to authorized banks illustrates a tactical approach to manage the naira’s value. With ongoing monitoring of local disbursement trends and a vigilant eye on foreign reserves, the CBN seems poised to navigate the intricate landscape of Nigeria’s foreign exchange market, even as challenges remain substantial.
