Naira Strengthens at Official Market to 1,498/$ as CBN Targets Racketeers

The Nigerian Autonomous Foreign Exchange Market witnessed a slight appreciation of the naira against the United States dollar on Thursday, closing at N1,498.25/$, compared to the previous day’s rate of N1,503.38/$. Simultaneously, the Central Bank of Nigeria (CBN) took robust measures to combat foreign exchange racketeering and curb sharp practices.

In a series of circulars dated February 14, 2024, the CBN implemented strategic measures to address the challenges. The first circular prohibits banks from disbursing Personal Travel Allowance in cash, while the second urges International Oil Companies to refrain from repatriating all revenue to their parent companies at once. The third circular involves a revision of guidelines to combat under-invoicing of exports and over-invoicing of imports.

Despite the drop in dollar supply by commercial banks in the spot FX market, with figures ranging from $292.3 million to $117.87 million, the naira persisted near 1,500/dollar at the official market on Thursday.

The parallel foreign exchange market revealed a contrasting picture as the naira depreciated to N1,600/$, marking a 6.45% increase from the week’s beginning. Nigerians, however, continued to turn to black market sellers, indicating persistent demand despite the CBN’s efforts.

Financial experts, including Johnson Chukwu of Cowry Asset Management Limited, had previously projected the possibility of the naira reaching N1,500/$ in 2024. The reality on the ground aligns with these concerns as some Bureau De Change operators reported the dollar closing at N1,600 on Thursday.

A report by Comercio Partners highlighted a significant 66% decline in the official exchange rate of the naira in 2023, emphasizing the challenges posed by persistent foreign exchange shortages and the widening gap between official and parallel rates.

In response to the prevailing economic dynamics, the CBN has reviewed the allowable limit of price deviation for exports and imports, setting it at -15% and +15% of the global average prices, respectively. This decision, attributed to global inflation and related challenges, aims to address over-invoicing of imports and under-invoicing of exports.

Additionally, the CBN has barred cash payments for Personal and Business Travel Allowances, mandating electronic channels for transactions. Furthermore, International Oil Companies have been directed to fund their offshore accounts in two phases to mitigate the impact of ‘cash pooling’ activities on domestic forex market liquidity.