February 15, 2024/FBNQuest Research
Significant volatility has trailed FX trades following the recent measures by the Central Bank of Nigeria (CBN) to promote forex supply. For instance, FX turnover reported by FMDQ has risen by +666.3% ytd. However, compared to the previous trading day, turnover declined by about -6910bps to USD117.9m. Consequently, the NGN/USD rate has traded between a high of NGN/USD 1,582 and low of NGN/USD 467 so far in 2024.
Since the CBN announced the strict limits on Nigerian banks’ net open position (NOP), market turnover has touched levels as high as USD854.5m.
In our view, although the increase in turnover coincides with the policy changes, we do not see direct causation.
We expect the impact of the policy changes to reflect much later in the year depending on the level of compliance.
Meanwhile, highest activity has remained in the spot market, accounting for about 99.7% of the overall market turnover. Forward trades accounts for the remaining 0.3%.
The CBN’s effort to defend the naira reflects on the forex reserve position.
According to data from CBN, the forex reserve stood at USD33.2bn as at 13th February, only +91bps higher than the USD32.9bn reported on 29th of December 2023. This implies an import cover of 8.1 months.
The CBN has been resolute in clearing FX backlogs. In January 2024, the CBN was stated to have paid USD61.6m from its outstanding forex obligation owed to foreign airlines.
The IMF in a recent report, projects that Nigeria’s foreign reserves at USD24bn by year-end 2024, with a recovery to USD38bn by 2028. This expectation is hinged on expected inflows from foreign portfolio investors.
Ytd, the NGN/USD rate has depreciated by -65.7%.
