• The CBN recorded its biggest dollar sales in a single month at $575 million based on FMDQ Securities Exchange data
• May's dollar sales record surpassed the combined sales for the two preceding months, March and April
• CEO of Financial Derivatives Company said the currency is expected to stabilise between N1,350 and N1,450

Legit.ng journalist Zainab Iwayemi has over three years of experience covering the Economy, Technology, and Capital Market.

In May 2024, the Central Bank of Nigeria (CBN) intervened in the foreign exchange market to increase supply, recording its biggest dollar sales in a single month.

The apex bank offloaded almost $575 million in May to offset lower inflows of foreign investment, according to information retrieved from the FMDQ Securities Exchange.

The sales of dollars in May exceeded the total sales over the preceding two months. A total of $340 million was sold by the CBN in the prior months; this includes $151 million in April and $189 million in March.

Following a five-month hiatus, the CBN restarted dollar sales in February and sold $392 million to banks.

Although it was more than in prior months, the CBN's intervention in May only contributed 6.6% of the $5.89 billion in market turnover for the month (not including the 31st).

BusinessDay reported that the turnover for the first thirty days of May is down 35% from the $9.12 billion transacted in April and 53% from the $12.6 billion turnover in March.

CBN intervenes to restore confidence

Foreign investors are becoming more wary of Nigeria's foreign exchange market due to the country's persistent inflation and unstable exchange rate.

A source familiar with the matter said:

“The CBN had to intervene in the market last week to prop the naira, given that dollar liquidity has been low.

“It had over $1 billion in Non-Deliverable Forwards, and the lower exchange rate that happened after the CBN sold dollars equated to a lower payout for the bank (CBN).”

The bank sold dollars three times last week, with its $141 million sale on Wednesday, May 29, marking the single-day high in 2024.

The CBN sold $126 million on Tuesday and $98 million on Monday in the days preceding that.

That comes to a total of $365 million in three days, surpassing the combined sales for the entire months of March and April.

The CBN also sold dollars to absorb some naira liquidity, a second reliable source told BusinessDay.

The source said:

“The CBN had futures maturities that meant liquidity injection of up to N1 trillion and with a tightening stance, they had just two means to mop up that liquidity- sell foreign exchange or sell OMO (Open Market Operations)- and they chose both.

“The consequence of selling FX is an appreciation and because there has been dollar liquidity issues and the rates have been rising in recent weeks, selling dollars into a liquidity starved market is what the CBN should have done in any case. It just happens to double as a naira liquidity extraction mechanism.”

The naira was unaffected by the CBN's busiest week in terms of dollar sales in over a year.

On Tuesday, the naira surged to a one-month high of N1173 per USD. However, by Friday, May 31, it was in worse shape than it started, ending at N1485.99 as opposed to N1482.81 on May 24.

According to Bismarck Rewane, CEO of Lagos-based Financial Derivatives Company, the currency is predicted to stabilise at a rate of between N1350 and N1450 over the course of the next 12 months.

CBN tells oil companies to sell dollar

Legit.ng earlier reported that the CBN said International Oil Companies (IOCs) are allowed to sell their 50% remaining repatriated export revenues on the Nigeria foreign exchange market.

This was disclosed by in a circular signed by W.J. Kanya, CBN's director of trade and exchange department.

On February 14, the CBN restricted IOCs' ability to transfer profits from oil exports to offshore parent company accounts.

Proofreading by James Ojo Adakole, journalist and copy editor at Legit.ng.

Source: Legit.ng