Nigerian Banks Offload $3.3 Billion Amid Central Bank Efforts to Counter Naira Decline

The Nigerian Naira faced a renewed decline in both official and parallel foreign exchange markets on Friday. The national currency depreciated to N1,670/$ at the parallel market, compared to the previous day’s N1,600/$. Simultaneously, the official rate closed at N1,537/$ on Friday, up from N1,498/$ recorded the day before.

Despite an influx of dollars totaling $3.83 billion over eleven days through the Nigerian Autonomous Foreign Exchange by Deposit Money Banks (DMBs), the widening gap of N133 between the official and parallel markets raises concerns about potential round-tripping activities.

The increased liquidity at the Nigerian Autonomous Foreign Exchange Market (NAFEM) resulted from the Central Bank of Nigeria’s (CBN) directive to banks to sell excess dollar stock, aiming to enhance liquidity in the foreign exchange (FX) market.

Data from FMDQ Securities Exchange showed that during the period from February 2 to February 15, commercial banks, the Central Bank of Nigeria (CBN), and international oil firms were the primary sellers on the NAFEM, contributing to the total transaction volume of $3.83 billion.

The CBN’s directive, issued as part of a series of guidelines, aimed to curb the trend of banks holding significant foreign currency positions. Despite these efforts, the naira’s depreciation and the growing gap between official and parallel market rates underscore the persisting challenges in the forex market.

The central bank’s recent policy interventions, including the directive to banks and other guidelines, are part of broader reforms aimed at stabilizing the forex market and boosting liquidity. However, concerns about the potential resurgence of round-tripping activities highlight the need for a comprehensive and sustained approach to address challenges in the forex market.

As the CBN continues to implement measures to enhance forex supply, the widening gap between official and parallel market rates underscores the need for a holistic strategy to ensure the stability and integrity of Nigeria’s foreign exchange market.