Nigeria’s currency, Naira, fell by 3.1 percent (N50.11) as dollar sales by banks maintained a steady decline, one week after the Central Bank of Nigeria (CBN) adjusted some foreign exchange (FX) policies to boost supply.
Dollar sales by banks dropped by 56.58 percent to $253.77 million on Friday from the peak of $584.53 million on Monday, the first trading day after the CBN ordered banks to sell excess dollar in the official FX market.
Cumulatively, commercial banks sold a total of $1.97 billion in one week, data collated from the FMDQ Exchange indicated.
Naira which appreciated on Monday after the FX policy announcement lost 3.41 of its value against the dollar for the five trading days in the week at the official market.
The FX market ended with the dollar closing at N1,469.97 on Friday from N1,419.86 quoted on Monday, the first trading day of the week.
On a day to day basis, naira gained 0.65 percent, stronger than N1,479.47 quoted on Thursday at Nigerian Autonomous Foreign Exchange Market (NAFEM).
At the parallel market, also known as the black market, the local currency slide by 3.16 percent (N47) week-on-week to N1,485 per dollar on Friday compared to N1,438/$1 closed on Monday.
The Nigerian foreign exchange market is currently facing increased demand pressures, causing a continuous decline in the value of the naira,” Yemi Cardoso, governor of the CBN, said during a sectoral debate by the House of Representatives on Tuesday.
Factors contributing to this situation include speculative forex demand, inadequate forex supply due to non-remittance of crude oil earnings to the CBN, increased capital outflows, and excess liquidity from fiscal activities.
To address exchange rate volatility, he said a comprehensive strategy has been initiated to enhance liquidity in the FX markets. This includes unifying FX market segments, clearing outstanding FX obligations, introducing new operational mechanisms for BDCs, enforcing the Net Open Position limit, and adjusting the remunerable Standing Deposit Facility cap.
On Friday, the CBN removed the spread on foreign exchange transactions at the interbank market. This was disclosed in a circular to all authorised dealers, dated February 8, 2024 and signed by Duke Omolara Omotunde, director, financial markets department of the CBN.
As of 2015, there was an N50k per one dollar cap or spread, between bids and offers in the foreign-exchange interbank market.
“In simpler terms, the Central Bank of Nigeria is making changes in how authorized dealers (entities allowed to trade foreign currency) operate in the foreign exchange market. The main goal is to let the market decide the prices more freely. They are removing restrictions on how much profit authorized dealers can make (spread) and on the sale of certain funds,” Kelvin Novo, a serial entrepreneur, said on Xbox, formerly, Twitter.