Business and Economy

Naira goes for N1490 per dollar as CBN sells $86 million in the spot market

The Central Bank of Nigeria (CBN) has taken a significant step towards stabilizing the naira by selling approximately $86 million in the spot FX market on Tuesday. This marks the first time since September 2023 that the CBN has sold dollars in the market.

According to sources familiar with the matter, the CBN sold the dollars at a rate as low as N1490 per dollar. More than half of the 34 banks that participated in the bidding process secured between $2-5 million.

The primary objective of this sale is to enhance dollar liquidity in the market and revive the performance of one of the world’s weakest currencies this year.

Instead of fixing rates, the CBN allowed banks to bid freely, which is seen as a positive move for the market, as stated by a source.

Previously, the CBN had halted dollar sales in the spot market to address a backlog in foreign exchange demand. This backlog had been eroding investor confidence in the CBN’s recent currency reform efforts.

The apex bank’s long-awaited intervention in the spot market was announced on October 12, 2023. The recent intervention is lower than last year’s average of $25 million per day. The CBN’s return to the market is praised for enhancing trading liquidity. Analysts stress the importance of professional and consistent sales to fully benefit from the interventions. The naira strengthened to N1499/$ on Tuesday compared to Monday’s record-low. The CBN’s intervention is part of measures to increase liquidity and prevent disparity between official and black market rates. Clearing the backlog is crucial for restoring investor confidence.

There has been skepticism surrounding Nigeria’s external reserves data ever since JP Morgan, a US-based bank that serves as the Nigerian government’s foreign banker, revealed that the Central Bank of Nigeria (CBN) only holds about 10 percent of its claimed net external reserves. The recent projection by the International Monetary Fund (IMF) suggests that Nigeria’s foreign reserves may plummet to a record low of $24 billion by 2024.

Although the CBN has refuted JP Morgan’s report, its ongoing struggle to settle the outstanding dollar debts owed to investors and businesses raises doubts about the authenticity of its claimed $33 billion in external reserves.

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