Foreign exchange inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) witnessed a notable 66.7% surge last week, reaching $2.2 billion as banks adhered to the Central Bank of Nigeria’s (CBN) new directives. Despite the abundant supply, the naira experienced a 2.3% decline in value.
The CBN had issued various circulars and guidelines, introducing new macroprudential limits for net open positions and lifting restrictions on International Money Transfer Operators (IMTOs) exchange rate quotes. These measures were aimed at enhancing liquidity and curbing volatility in the foreign exchange market.
By the end of the week, dollar inflows at the NAFEM window, also known as the Investors and Exporters (I&E) window, reached $2.2 billion. However, the naira’s value at the I&E window depreciated by 2.3%, closing the week at N1,469.97 to the dollar, with trades occurring between N830 and N1,550 at the official window.
In the parallel market, the naira’s value also experienced a decline, settling at N1,470 to the dollar, representing an 8.2% decrease in the local currency’s value. Analysts from Cordros Research attributed the forex supply boom at the I&E window to banks complying with the new macroprudential limits, coupled with the removal of restrictions on IMTOs exchange rate quotes and interbank forex deal spreads.
They anticipate continued pressure on the local currency, emphasizing that the CBN’s updated policy on limiting banks’ foreign currency exposure will support turnover in the NAFEM and enhance market supply in the short term. Despite gains in addressing the forex backlog, significant appreciation of the currency is not expected until the backlog is completely cleared, policy actions are frictionless and sustained, and the CBN builds capacity to intervene in the market during periods of pressure.
Analysts at Afrinvest West Africa emphasized the need for CBN reforms to restore market confidence and boost major forex inflow channels. While acknowledging the central bank’s efforts to clear forex backlogs, they called for closer coordination with the fiscal leg to manage excess liquidity, especially considering the substantial growth in money supply to N78.7 trillion at the end of 2023.
