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The Nigerian naira made significant gains across the foreign exchange market as the Central Bank of Nigeria (CBN) took the noteworthy step of lifting restrictions on 43 items from its FX restriction lists after eight years. Data from FMDQ revealed that the local currency appreciated by 2.27% against the US dollar within the Investors and Exporters window, closing at N759.20.
Just the day prior, the organized FX market had concluded at N776.80 per greenback, marking a notable shift.
In the parallel market, the Naira appreciated by 0.49% to close at N1,035 against the US dollar, spurred by the news that the CBN had removed restrictions on previously banned items, as part of its commitment to achieving rate convergence.
In a circular issued, the CBN has granted importers of the 43 items, previously restricted according to a 2015 Circular, the ability to access foreign exchange in the Nigerian Foreign Exchange Market.
The apex bank has also reiterated its dedication to addressing the existing FX backlog, which is estimated to range between $6.5 billion to $10.0 billion, and concurrently, enhancing overall market liquidity.
In response to this development, analysts and experts expressed optimism that this move represents a step toward restoring confidence in the FX market, which has been grappling with prolonged illiquidity and unconventional policies. They underscored that this ban was initially put in place due to a substantial decline in FX inflows.
To prevent a resurgence of the underlying factors that necessitated dollar demand management and unconventional FX policies in Nigeria, the supply of FX will need to improve sooner rather than later, as noted by CardinalStone in a commentary note.
On a more favorable note, the latest report from the Organisation of Petroleum Exporting Countries (OPEC) indicated that Nigeria’s crude oil production witnessed an increase in September 2023, aligning with a resurgence in global oil prices.
Further insights from the commodities market indicated that WTI crude futures embarked on a recovery path, surpassing $84 per barrel on Thursday. This resurgence was attributed to collaborative efforts by major oil players, notably Saudi Arabia and Russia, aimed at stabilizing the oil market. Concurrently, investors remained vigilant regarding unfolding events in Israel and Gaza, which could have a substantial impact on market dynamics.
“Nigeria must increase its oil production to recover from FX shocks and fiscal challenges,” stated LSintelligence Associates in an email to MarketForces Africa.
CardinalStone noted, “To enhance FX supply, the CBN and fiscal authorities may need to explore options like obtaining dollar facilities through Diaspora bonds, Eurobonds, or concessional loans from bilateral/multilateral institutions, asset sales (full or partial), among other strategies. Curbing oil theft, enhancing domestic oil production efficiency, and issuing new oil mining licenses are potential short-to-medium-term solutions.”
The effectiveness of the new policy is likely contingent on the extent of FX supply improvement within the Investors and Exporters window, considering the anticipated rise in FX demand following the lifting of the ban.
**Key Points from the Circular:**
1. The CBN will continue promoting orderly and professional conduct by participants in the Nigerian Foreign Exchange Market, where market forces determine exchange rates on a “Willing Buyer – Willing Seller” principle.
2. FX rates should be referenced from platforms such as the CBN website, FMDQ, and other recognized trading systems to enhance price discovery, transparency, and credibility in FX rates.
3. The CBN will intervene to boost liquidity in the Nigerian Foreign Exchange Market from time to time, with a gradual reduction in interventions as market liquidity improves.
4. Importers of all 43 items previously restricted by the 2015 Circular are now permitted to purchase foreign exchange in the Nigerian Foreign Exchange Market.
5. The CBN remains committed to clearing the FX backlog with existing participants and is in ongoing dialogue with stakeholders to address this issue.
6. The CBN is actively working toward the goal of achieving a single FX market and is consulting with market participants to attain this objective.
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