The Central Bank of Nigeria (CBN) responded to negative fluctuations in the exchange rate by intervening in the forex market five times due to pressures resulting from foreign currency scarcity. The top bank contributed $33 million in total to increase the market’s FX liquidity.
The persistent drop in the value of the naira relative to the US dollar and other currencies in the FX market had a bearing on the CBN’s decision to sell the US dollar. The naira continued to decline despite the FX sales since there was still a greater demand for foreign currency than there were US dollars available.
The monetary authority was criticized for using Nigeria’s foreign reserves to support the naira, but the top bank reaffirmed its resolve to adhere to its willing buyer, willing seller foreign exchange policy.
Reversing its position, the monetary authority sold the US dollar to help keep the exchange rate steady ahead of its payment obligation on its maturing non-deliverable forwards in the financial market last week.
Analysts noted that the apex bank market intervention was supported by improved inflows from foreign portfolio investors following attractive rates on OMO bill sales.
The apex bank’s rapid response intervention came after it successfully stemmed pressures that would have emanated in the currency market following $1.3 billion in non-deliverable forwards that matured in the latter part of May 2024.
A run on the naira exchange rate was stepped down with open market operation (OMO) bills sales on Monday. The CBN floated its eighth OMO auction of the year, offering instruments worth N500.00 billion.
The amount was split into N75.00 billion for the 90-day bills, N75.00 billion for the 174-day bill, and N350.00 billion for the 363-day bill—to participants, traders said in their separate reports. Cordros Capital Limited said investors’ focus was largely on the 1-year bill amid zero interest in the 90-day bill
“The CBN’s OMO issuances after the USD1.30 billion non-deliverable forwards matured on May 29 forestalled demand pressure that could have resulted in the weakening of the naira”, Cordros Capital Limited said in its market note.
Data from CBN website showed that Nigeria’s FX reserves paused its five-week growth trend as the gross reserve level weakened by USD44.00 million to USD32.69 billion.
Elsewhere, the naira appreciated to a month-high of N1,173 on 28 May before closing the week at N1,485.99 at the Nigerian Autonomous Foreign Exchange Market (NAFEM). Naira Rises by 19% as Forex Market Pressures Ease
According to Cordros Capital note, the CBN intervened in the market five times over the week, with total sales of USD338 million within the range of N1,030 and N1,400.00 per US dollar
