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Facing intensified foreign currency scarcity, the Central Bank of Nigeria (CBN) intervened in the forex market five times to counter negative exchange rate trends, injecting a total of $33 million to bolster FX liquidity.
This strategic move by the CBN was driven by the sustained depreciation of the naira against the US dollar and other major currencies. Despite these interventions, the naira remained under pressure as the demand for foreign currency continued to outstrip supply.
The CBN reaffirmed its commitment to its willing buyer, willing seller FX policy amid criticism for allegedly using Nigeria’s external reserves to defend the naira in April. In a policy reversal, the CBN sold US dollars to stabilize the exchange rate ahead of maturing non-deliverable forward obligations in the financial market last week.
Analysts highlighted that the CBN’s market intervention was supported by improved inflows from foreign portfolio investors, attracted by favorable rates on Open Market Operations (OMO) bill sales.
The apex bank’s swift intervention helped mitigate potential market pressures from $1.3 billion in maturing non-deliverable forwards in late May 2024. To alleviate the strain on the naira, the CBN conducted its eighth OMO auction of the year, offering N500 billion worth of instruments.
The auction was divided into N75 billion for 90-day bills, N75 billion for 174-day bills, and N350 billion for 363-day bills. Traders reported that investor interest was predominantly in the 1-year bills, with minimal interest in the 90-day bills.
Cordros Capital Limited noted, “The CBN’s OMO issuances after the USD1.30 billion non-deliverable forwards matured on 29 May prevented demand pressure that could have weakened the naira.”
Data from the CBN website indicated a halt in the five-week growth trend of Nigeria’s FX reserves, which decreased by $44 million to $32.69 billion.
Meanwhile, the naira appreciated to a month-high of N1,173 on May 28 before closing the week at N1,485.99 at the Nigerian Autonomous Foreign Exchange Market (NAFEM). The naira rose by 19% as forex market pressures eased.
According to Cordros Capital, the CBN intervened in the market five times over the week, selling a total of $338 million within the range of N1,030 to N1,400 per US dollar.
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