In an effort to control exchange rate volatility, the Central Bank of Nigeria (CBN) sold US dollars to commercial banks at N1630 per dollar in its weekly foreign exchange (FX) intervention. This move signals a shift towards finding the true market value of the naira as the currency faces persistent downward pressure.
This week, the exchange rate in the official market breached a significant threshold, prompting fresh intervention by the CBN. Despite these efforts, spot rates continued to decline week over week.
Details from the recent FX sales show that the CBN has been gradually decreasing the volume of dollars sold to banks, even as Nigeria’s foreign reserves have seen steady growth. According to analysts, the CBN’s restrained support for the naira reflects concerns over the nation’s declining export revenues, which limit its capacity to support a “willing buyer, willing seller” approach.
Although the CBN has stated it does not intend to actively defend the naira, recent auctions have demonstrated increased volatility in the currency’s value. In the latest FX auction, the CBN allocated just $77 million to authorized banks, highlighting a significant dollar shortage in the official market. The first auction last week saw $47 million sold, followed by $30 million in a subsequent sale—both at the N1630 rate.
The CBN is also preparing to test its new automated forex trading platform, which is set for full rollout in December 2024. This initiative aims to enhance transparency and reduce sharp practices in the FX market. To ensure a smooth transition, a trial run is planned before the official launch date.
Market observers have noted that the CBN has shifted to selling dollars at higher spot rates, a change from previous trends. In total, the central bank conducted three FX sales last week, disbursing $148 million to authorized dealers.
Despite these interventions, Nigeria’s foreign reserves have continued to grow, marking their ninth consecutive weekly increase, up by $326.64 million to $39.77 billion. This growth suggests a cautious but stabilizing influence on the economy, even as dollar shortages persist.
