Naira Weakens at Official Market as Banks Sell $584 Million

The official Nigeria Autonomous Foreign Exchange Market witnessed a surge in foreign exchange transactions, reaching a staggering $584 million, as reported by data from the FMDQ Exchange on Tuesday. This marks a significant rise from the previously recorded daily transaction of $440 million.

The national currency faced a decline against the United States dollar, closing at N1433/dollar on Tuesday, compared to the N1419/dollar recorded the previous day. The increased forex turnover from $440.13 million to $584.53 million signifies a substantial uptick of $144.4 million or 32.8%.

This surge in liquidity is attributed to measures taken by the Central Bank of Nigeria (CBN) to stabilize the foreign exchange rate. Commercial banks, alongside the CBN, oil firms, and multinationals, actively participated in selling dollars at the Nigerian Autonomous Foreign Exchange Market.

In response to the growing challenges, the CBN recently issued circulars and guidelines aimed at enhancing liquidity and narrowing the gap between parallel and official exchange rates. The apex bank expressed concern over banks holding large foreign currency positions, issuing a mandate that banks’ Net Open Position (NOP) must not exceed 20% short or 0% long of the bank’s shareholders’ funds. The deadline for compliance with this directive was set for February 1, 2024.

Following these adjustments, the national currency experienced positive gains at the official market, closing at N1,455.59/$ on Wednesday, N1,445/$ on Thursday, and N1435.53/$ on Friday of the previous week. However, after Tuesday’s trading, the naira faced a marginal depreciation of 0.85%, with the dollar quoted at N1,433.89, stronger than the N1,421.70 quoted on Monday at the NAFEM market.

Meanwhile, Bureau De Change operators reported varying dollar exchange rates at the parallel market, ranging between N1,480 and N1,485. Despite optimism from economic managers, some operators voiced concerns about the exorbitant price of the dollar, highlighting challenges faced in the market.

The situation remains dynamic, with economic observers anticipating the firming up of the naira on both markets in the coming days.