Forex reserves increase as CBN supplies dollar to currency dealers

• Last week, the Nigerian Autonomous Foreign Exchange Market (NAFEM) saw a notable increase in overall FX turnover
• The large increase was mostly the result of strategic steps taken by the Central Bank of Nigeria (CBN) against banks
• Since the first week of June 2024, this milestone marks the first time that weekly FX turnover has exceeded $1 billion

Legit.ng journalist Zainab Iwayemi has over 3-year-experience covering the Economy, Technology, and Capital Market.

The total foreign exchange (FX) turnover on the Nigerian Autonomous Foreign Exchange Market (NAFEM) increased significantly last week to $1.03 billion.

The large increase was mostly the result of strategic steps taken by the CBN. Photo Credit: CBN, Liubomyr Vorona
Source: UGC

The Central Bank of Nigeria (CBN)'s strategic actions against banks were primarily responsible for the notable increase.

Comparing the amount to the prior turnover of $740.92 million, there has been a 40% increase. This milestone represents the first time weekly FX turnover has exceeded $1 billion since the first week of June 2024, when it reached $1.05 billion, according to data from FMDQ.

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On July 1, 2024, FX turnover was $122.31 million. By July 8, it had increased to $133.5 million, a 9.11% increase. The surge suggested that early last week saw a modest boost in market activity.

The turnover did, however, drop by 11.8% after that. The entire turnover on Thursday was $943.29 million, up 14.3% from the previous day. Trades were made in the N1,465.00/$1 - N1,590.00/$1 range. The apex bank's second day of dollar sales fell on the same day as the high.

CBN sold dollars to banks

The CBN's Director of Financial Markets, Omolara Duke, revealed that on Wednesday, Thursday, and Friday, the apex bank sold $67.5 million, $55.17 million, and $122.67 million to 27, 19, and 46 authorised dealers, respectively.

The CBN also asked all licensed dealers to make sure that any foreign exchange acquired from the bank is only utilised for trade-backed transactions, which need to be disclosed to the authorities within 72 hours.

Furthermore, Nigeria's foreign exchange reserves increased last week as well; as of July 11, gross reserves had increased by $507.09 million on a weekly basis to $35.28 billion.

Notwithstanding these measures and encouraging trends, the naira dropped 3.5% weekly to N1,563.80/$1 at NAFEM. During the week, the CBN sold $94.00 million to banks at an average rate of N1,504.00/$1.

In response to these events, market analysts pointed out that while market liquidity had somewhat improved as a result of the CBN's actions, it was still inadequate to cause the naira to appreciate significantly because demand for foreign exchange continued to outpace supply.

They stated,

Prior to this, Daily Sun reported that the CBN's increased dollar sales in anticipation of a $1.3 billion non-deliverable forward (NDF) maturing on May 29, 2024, had caused the naira to appreciate by double digits at NAFEM.

Naira loses strength against British Pound, Dollar

Legit.ng reported that with the US dollar at a four-month high, the value of the British pound sterling is rapidly approaching the feared N2,000/£1 threshold on the parallel market, trading at N1,964/£1.

This increase comes after the Office for National Statistics announced a 0.4% growth in the UK GDP in May.

The Central Bank of Nigeria (CBN), responding to the event, has urged composure and guaranteed that the worst is behind the naira.

Source: Legit.ng