Nigerian FX market experiences surge in activity: CBN reports 180% increase in turnover

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The Central Bank of Nigeria (CBN) has revealed a significant increase in foreign exchange (FX) market activity.

According to data released by the apex bank in its February 2024 Economic Report, the average daily FX turnover reached $240.64 million, representing a remarkable 180.47% growth compared to $85.80 million recorded in February 2023.

Between January and February, the CBN said the Nigerian economy recorded a higher net inflow, driven largely by increased inflow through the Bank and autonomous sources.

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“Foreign exchange flows through the economy resulted in a net inflow of $6.45bn, as against the $2.40bn in January. A breakdown indicated a net inflow of $4.99bn and $1.46bn through autonomous sources and the Bank, respectively.

“Aggregate inflow into the economy increased by 80.45 per cent to $8.86bn, compared with $4.91bn in the preceding month. Inflow through the Bank rose by 127.97 per cent to $3.26bn, from $1.43bn in the prior month. Autonomous inflow increased by 60.92 per cent to $5.60bn, from $3.48bn. Aggregate foreign exchange outflow decreased by 4.74 per cent to $2.41bn, compared with the $2.53bn in the previous month.

“Autonomous outflow increased to $0.56bn from $0.47bn in January. A net inflow of $2.56 bn was recorded through autonomous sources, compared with $2.97bn in January. The CBN recorded a net inflow of $0.075bn, compared with a net outflow of $0.46bn in the preceding month,” the CBN said.

This surge in FX activity coincides with several key developments in the Nigerian economy.

Potential Contributing Factors:

• Increased Oil Revenue: A potential explanation for the rise in FX turnover could be improved oil prices on the global market. Nigeria, a major oil producer, benefits from higher crude prices, leading to increased dollar inflows.
• World Bank Loan: In June 2024, Nigeria secured a $751 million loan from the World Bank. This injection of foreign currency could have contributed to the increased FX market activity.
• CBN Intervention: The CBN has been actively intervening in the FX market to manage volatility and maintain a stable exchange rate. This intervention may involve selling dollars to authorized dealers, which would increase the overall volume of FX transactions.

Impact and Implications:

The consequences of this surge in FX activity are multifaceted. An increase in FX turnover can be interpreted as a positive sign for the Nigerian economy, potentially indicating:

• Improved Business Confidence: Increased FX activity could suggest greater confidence among foreign investors and businesses operating in Nigeria. This can lead to higher foreign direct investment (FDI) and stimulate economic growth.
• Enhanced Liquidity: A more active FX market can improve liquidity in the foreign exchange market, making it easier for businesses and individuals to access dollars for international transactions.
• Exchange Rate Stability: The CBN’s interventions, coupled with the increased FX activity, could contribute to a more stable exchange rate, reducing uncertainty for businesses that rely on imports and exports.

The CBN’s monetary policy decisions and the overall performance of the Nigerian economy will play a crucial role in determining whether the current surge in FX activity translates into sustained economic growth. Market analysts will be scrutinizing future CBN reports and economic data to understand the underlying causes of this growth and its potential long-term impact.

Tags: CBN, FX, Foreign Exchange, Central Bank of Nigeria, Olayemi Cardoso, Nigeria, Bola Tinubu, World Bank, Economy, Revenue