Nigeria’s exchange rate closed July 2024 at N1608.73/$1, marking a 6.43% depreciation on the official market for the month.
According to data from FMDQ, the naira performed at a four-month low in July, fluctuating between a low of N1,500.32 and a high of N1,621.12, breaching the N1,600 ceiling.
The depreciation occurred despite the efforts of the Central Bank of Nigeria (CBN) to save the official market from illiquidity through dollar sales.
CBN’s FX sales boost FX turnover
In July, the CBN did at least three sales of foreign exchange (FX) to authorized dealers and one sale to Bureau de Change (BDC) operators as naira faced severe pressure.
This support from the CBN likely boost FX turnover on the Nigerian Autonomous Foreign Exchange Market (NAFEM) window last month.
According to data from Nairalytics, the research arm of Nairametrics, FX turnover on the official market increased by 30% to $4.34 billion from $3.33 billion recorded in the previous month.
CBN sold $377.17 million to authorized FX dealers
The Nigeria’s central bank sold at least $377.17 million to authorized FX dealers in July.
According to circulars from the apex bank announcing the sales, the first occurred in the same week of July as the the CBN sold $122.67 million to 46 authorized dealers. It was a two-day sale as the bank first sold $67.5 million to 27 authorized dealers, while purchasing $2.5 million from one authorized dealer. The bid range for these transactions was between N1,480/$1 and N1,500/$1. Payments for these transactions are scheduled for July 12, 2024, following a two-day settlement cycle (T+2). For the second day, the CBN sold $55.17 million to 19 authorized dealers at a rate of N1,540.0/$1. No foreign exchange was purchased on this date. The payments for these spot sales are due on July 15, 2024.
The CBN further urged all authorized dealers to ensure that foreign exchange purchases from the bank are exclusively used for trade-backed transactions, which must be reported within 72 hours.
The following week, the CBN announced the sale of $106.5 million as foreign exchange (FX) to 29 FX dealer banks. In a statement signed by Dr Omolara Omotunde Duke, Director, Financial Markets Department, it was disclosed that on July 18 and 19, 2024, the CBN sold $106.5 million to 29 authorized dealer banks at exchange rates ranging from N1,498/$1 to N1,530.00/$1 and bought $9.5 million from four authorized dealer banks at rates between N1,510/$1 and N1,550/$1.
The CBN further attributed recent foreign exchange market movements to corporate demand pressure and the seasonal summer uptick.
It said it has initiated regular foreign exchange sales through Authorized Dealer Banks and licensed Bureaux De Change (BDCs) to stabilize the market and ensure liquidity.
For the third FX sale, the apex bank sold $148 million to authorized dealers. The foreign exchange was sold to 29 Authorized Dealer banks at exchange rates ranging between N1,470.00$1 and N1,510.00/$1.
Aside from the FX sales to authorized dealers, the CBN announced the approval of the sales of FX to eligible BDCs to meet the demand for invisible transactions in a decisive step to strengthen the naira on Thursday, July 18, 2024. The bank announced that the sum of $20,000 is to be sold to each BDC at the rate of N1,450/$1. This rate represents the lower band of the trading rate at the NAFEM from the previous trading day.
These sales from the CBN came at a time when the naira faced severe demand pressure.
What you should know
In its last statement announcing the sale of FX to authorized dealers, the CBN said it would continue to address the supply gap to ensure market stability.
According to a yet-to-be verified circular seen by Nairametrics, the CBN recently mandated authorized dealer banks to compile and submit a legitimate list of all outstanding FX demand in response to the increasing unmet demand for FX by end-users. This measure is aimed at mitigating the adverse impact of FX market pressure on the exchange rate of the naira.
It was noted that the CBN will conduct a Retail Dutch Auction System (rDAS) on Wednesday, August 7, 2024, to provide FX for eligible transactions, mitigating the demand pressure.
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