CBN intervenes in Forex Market, Naira strengthens

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In a move aimed at improving access to foreign exchange and curbing currency depreciation, the Central Bank of Nigeria (CBN) has intervened in the retail foreign exchange market. This intervention resulted in a significant drop in the exchange rate, with reports indicating a decrease of 3.4% in the cost of obtaining foreign exchange for retail transactions.

In a letter addressed to the President of the Association of Bureau De Change Operators of Nigeria (ABCON), Director, Trade and Exchange Department at the CBN, Dr. Hassan Mahmud, explained the rationale behind the adjustments. The CBN stated it aims to address “continued price distortions at the retail end of the market,” which the apex bank believes contributes to a wider gap between the official exchange rate and the black market rate.

The circular reads: “The CBN has outlined specific instructions for the BDCs to access forex, including that all eligible BDCs must make naira payments to designated CBN naira deposit accounts before the close of business on Thursday, March 28th, 2024 and confirmation of payment, along with required documentation, must be submitted for forex disbursement at designated CBN branches in Lagos, Abuja, Awka, and Kano.

“The CBN’s revised forex policy for BDCs highlights its ongoing efforts to achieve a stable and market-driven exchange rate in Nigeria. This move follows the initial resumption of forex sales to BDCs in February 2024, which aimed to address challenges in the retail forex market.”

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The CBN has been grappling with a weakening naira in recent months. To manage the forex market, the bank utilizes various tools, including open market operations and direct interventions like this latest one. This intervention is expected to provide relief to individuals and businesses involved in legitimate foreign exchange transactions.

The CBN’s action comes amid concerns over the rising cost of foreign exchange, which can put a strain on imports and stifle economic activity. Businesses that rely on foreign exchange for raw materials or finished goods may benefit from the lower forex rates. Similarly, individuals travelling abroad or needing foreign currency for medical treatment or education could see some cost relief.

It is anticipated that this latest intervention will help stabilize the forex market and ease pressure on the naira. However, analysts caution that the CBN will need to continue monitoring the situation and take further measures if necessary to maintain a stable exchange rate. The long-term health of the naira also depends on broader factors like global oil prices and Nigeria’s economic performance.