February 7, 2024/CSL Research

The financial markets experienced significant activity last week, marked by the publication of several circulars by the CBN aimed at enhancing FX liquidity. Following the depreciation of the Naira to as low as N1482.57/US$ after warning from the CBN against the unethical reporting practices of authorized dealers, the currency saw an initial appreciation to N1419.86/US$ on Monday. However, it underwent a depreciation, closing at N1433.89/US$ in the official market yesterday.

Last week, the CBN implemented various policies, including directing banks to maintain a zero net long open dollar position, discontinuing daily CRR debits for banks, and applying the existing CRR ratios of 32.5% for commercial banks and 10% for merchant banks to increases in banks’ weekly average adjusted deposits.

Additionally, a CRR levy equivalent to 50% of the lending shortfall will be imposed on banks failing to meet the current minimum Loan to Deposit Ratio (LDR) of 65%. The CBN also prohibited banks and fintechs from conducting IMTO services, permitting banks to act solely as agents. Furthermore, the central bank ceased IMTOs from engaging in outbound transactions and removed the transaction cap for International Money Transfer Operators (IMTOs).

According to data from FMDQ, there was a notable surge in market turnover after the announcements. Nonetheless, forex turnover experienced a 20.26% decrease, settling at US$465.29 on Tuesday, 6 February.

Despite the optimism surrounding the new FX rules introduced by the apex bank, aimed at augmenting dollar supply from commercial banks and stabilizing the naira in the short term, volatility persists. We however note that it is still early in the implementation of these measures and more time is required to assess the impact.

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