Naira sells 1,485/dollar as official forex market records $23bn

Forex turnover at the official foreign exchange market has increased to $23.29bn within over six months of trading following a flurry of reforms by the Central Bank of Nigeria, findings by The PUNCH have shown.

This was as the naira traded against the United States dollar between the rate of N980 and N1,500 per dollar between January and June.

On Friday, the naira closed at N1,485 against the dollar at the close of trading activity.

An analysis of reports and data of daily forex transactions recorded on the website of FMDQ Securities, a platform that publishes official foreign exchange trading in the country, indicated that the figure increased by 15 per cent or $0.6bn between January and June 21st through the Nigerian Autonomous Foreign Exchange by Deposit Money Banks.

Commercial banks, CBN and international oil firms are the major sellers of forex at NAFEM.

An analysis showed that $4bn of forex transactions was sold in January. It increased by 46.5 per cent or $1.86bn to $5.14bn in February.

The figure however dropped to $4.7bn in March, and $2.5bn in April. In May, dollar sales increased by 84 per cent or $2.1 to $4.60bn.

A further breakdown of the dollar supply showed that the forex market recorded a $4bn turnover in January and increased by $3.3bn within two weeks (February 2 to 16) of implementing a new rule, asking banks to sell their excess dollar stock to improve liquidity in the FX market within 24 hours.

In the weeks that followed, the supply stabilised, recording $890.65m between February 19 and 23. This inflow increased to $953.02m in the week ending February 26 to March 1.

According to data sourced from the FMDQ Security Exchange, forex sales data showed that there was improved liquidity in the market as a $4.7bn transaction was sold in March.

However, FX sales reduced by 51 per cent month-on-month to $2.5bn coinciding with the observed naira depreciation in April.

In the month of May, Nigeria‘s currency, ended the month weaker, despite a surge in dollar supply amounting to $4.60bn in the official FX market.

Also, forex trading between willing buyers and sellers amounted to $2.29bn within 12 days of trading activities in June.

Liquidity in the forex market has been attributed to an array of policies currently implemented by the CBN.

Key reforms include the unification of exchange rate windows, liberalisation of the FX market, clearance of FX backlog obligations for banks and airlines, implementation of a Price Verification System, imposition of limits on banks’ Net Open Position, removal of the daily cap of N2bn on remunerable Standing Deposit Facility, and overhaul of the Bureau De Change segment.

Forex turnover is a critical metric in the financial world as it represents the total value of all foreign exchange transactions completed within a specific timeframe, providing insights into the liquidity and vibrancy of the forex market.

High turnover rates indicate a highly active market with numerous participants engaging in buying and selling currencies, which can signal investor confidence and economic stability.

On the official end of the market, the apex bank started by addressing suspected cases of excessive foreign currency speculation and hoarding from Nigerian banks.

The apex bank also announced the complete clearance of the valid foreign exchange backlog. They stated that they concluded the payment of $1.5bn to settle obligations to bank customers, effectively settling the residual balance of the FX backlog.

Nigeria’s currency, the naira, has shown relative stability over the past month, trading between N1,476 and N1,485 against the dollar in the official foreign exchange market, but sustainability remains a concern.

The naira stability has been attributed to low demand and increased dollar inflows, which have helped to strengthen the external reserves.

Nigeria’s external reserves have increased by 2.81 per cent month-on-month to $33.640 billion as of June 20, 2024, compared to $32.720 billion recorded on May 20, 2024, according to data from the Central Bank of Nigeria.

Governor of the Central Bank of Nigeria, Olayemi Cardoso, had at various fora emphasised the critical need to attract inflows to maintain liquidity in the foreign exchange market and stabilise the exchange rate.

He emphasised the importance of managing exchange rates to address inflationary pressures and ensure both price stability and sustained long-term economic growth.

“Failure to tame inflationary pressure using the exchange rate channel may jeopardize not only price stability but also long-term growth.”

Meanwhile, the naira ended the trading week at N1,485.53 per dollar, unchanged from Thursday’s closing of N1,485.36. Earlier in the week, the dollar rates were as follows: N1,476.12 on June 3, N1,476.95 on June 4, N1,488.60 on June 5, N1,481.49 on June 6, and N1,483.99 on June 7, data from the FMDQ Securities Exchange Limited showed.

According to FMDQ Exchange, a platform that oversees the official FX trading in Nigeria, the dollar exchanged for as high as N1,505 and as low as N1,401, during trading hours.

The daily FX market turnover stood at $193.50 million. The Nigerian naira exhibited stability in the official market, aligning with Fitch Ratings’ projections, to end the year at N1,450 per dollar.