The naira faced a new round of depreciation at both the official and parallel foreign exchange markets on Friday, despite the efforts of the Central Bank of Nigeria (CBN) and the Deposit Money Banks (DMBs) to boost liquidity and supply in the forex market. The naira fell to N1,670/** at the parallel market from **N1,600/on Thursday, while it closed at N1,537/** at the official market from **N1,498/the previous day. This created a N133 gap between the two markets, raising concerns about possible round-tripping and speculation.
The naira’s decline came in spite of the increased dollar sales by the DMBs, who sold a total of $3.83bn in eleven days of trading activities through the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to data from the FMDQ Securities Exchange. The DMBs, along with the CBN and the international oil companies, are the major sellers of forex at NAFEM.
The surge in dollar sales was prompted by a directive from the CBN, which asked the banks to sell their excess dollar stock and improve liquidity in the forex market. The CBN also issued a circular that mandated the banks not to exceed a new threshold in their forex prudential guidelines, and warned them against hoarding and round-tripping of foreign currencies.
The FMDQ report showed that the banks sold $1.97bn in the first week of the CBN’s directive, and $1.86bn in the second week. However, the increased supply did not prevent the naira from depreciating, indicating that the demand pressure was still high.
CBN Introduces New Measures to Stabilize Forex Market
The CBN has been implementing various measures to stabilize the forex market and support the naira, especially in the face of the COVID-19 pandemic and the volatility in the global oil market. Some of the recent measures include:
- Restricting the payment of Personal Travel Allowance (PTA) by the banks to their customers, and directing them to source forex from the CBN or other authorized dealers.
- Asking the international oil companies not to repatriate all their revenue to their parent companies at once, but to sell a portion of it to the CBN or the DMBs.
- Reviewing the guidelines for export and import transactions, to prevent under-invoicing of exports and over-invoicing of imports, and to ensure compliance with the export repatriation policy.
- Introducing a new framework for remittances, which allows beneficiaries to receive inflows in foreign currency or naira, and encourages the use of International Money Transfer Operators (IMTOs) instead of informal channels.
The CBN Governor, Olayemi Cardoso, expressed his confidence in the effectiveness of these measures, and said that they were yielding positive results in the forex market. He also said that the CBN was committed to addressing the financial challenges faced by businesses and individuals, and to transforming the landscape of modern banking.
NACCIMA Calls for More Government Intervention
While the CBN’s efforts have been applauded by some stakeholders, others have called for more government intervention to address the economic challenges and the naira’s slump. The National President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA), Dele Oye, urged the government to intensify its efforts to stabilize the naira and curb inflation, which hit a record high of 16.47% in January.
Oye emphasized the importance of a stable currency for the affordability of agricultural inputs and the purchasing power of consumers. He also called for the implementation of robust economic policies that would facilitate access to low-interest loans for farmers and enhance local food production. He said that the government should work with the private sector and other stakeholders to create a conducive environment for business growth and development.
