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CBN Intervenes with Record $575M Dollar Sales to Stabilize Forex Market

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Central Bank of Nigeria (CBN)

The Central Bank of Nigeria (CBN) recorded its highest dollar sales in a single month for 2024 in May as it sold $575 million.

According to data from FMDQ Securities Exchange, this dollar sale exceeds the combined total of the previous two months, with $151 million sold in April and $189 million in March.

The May figure underscores the CBN’s intensified efforts to prop up the naira and ensure market stability.

Liquidity in Nigeria’s foreign exchange market has significantly dipped due to ongoing instability in the exchange rate and persistent inflation, which has deterred foreign investors.

The total market turnover for May (excluding the 31st) was $5.89 billion, a notable decrease from $9.12 billion in April and $12.6 billion in March.

“The CBN had to intervene in the market last week to prop the naira, given that dollar liquidity has been low,” said a source familiar with the matter.

The CBN’s intervention included selling $98 million on Monday, $126 million on Tuesday, and a single-day high of $141 million on Wednesday, marking its busiest week in terms of dollar sales in nearly a year.

Despite this aggressive intervention, the naira’s volatility persisted. After an initial jump to a one-month high of N1173 per USD, the naira ended the week weaker, closing at N1485.99 on Friday, May 31, compared to N1482.81 the previous week.

The CBN’s actions are part of a broader strategy to manage naira liquidity and inflation. By selling foreign exchange, the CBN also aims to mop up excess naira liquidity from the market, a tactic employed alongside Open Market Operations (OMO).

“Provision of foreign exchange is critical to stabilize the naira and control inflation,” explained a market analyst. “Selling dollars into a liquidity-starved market helps manage the exchange rate and curb inflationary pressures.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Finance

Nigeria’s FX Inflows Leap 57% as CBN Steers Economic Confidence

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U.S dollar - Investors King

Nigeria’s foreign exchange (FX) inflows have surged by 57% over the past year, signaling newfound stability for the Naira.

Analysts attribute this growth to the Central Bank of Nigeria’s (CBN) consistent policies, which have bolstered investor confidence and enhanced market stability in Africa’s most populous nation.

Data from the CBN reveals that FX inflows rose to $8.86 billion in February 2024, compared to $5.66 billion in February 2023.

This increase is a testament to the effectiveness of the CBN’s strategic measures. Similarly, foreign exchange turnover skyrocketed 180% year-on-year to $240.64 million in February 2024.

“The upsurge in FX inflows reflects the positive impacts of increased interest rates and the relative stability of the exchange rate,” said Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting.

He noted that high interest rates in Nigeria are attracting investors seeking better returns compared to developed countries.

The CBN has actively engaged with foreign investors, addressing concerns and providing insights into monetary policy actions.

Olayemi Cardoso, the CBN governor, emphasized that investor confidence has been restored, partly due to the bank’s clearance of a $7 billion foreign exchange backlog.

New investments into Nigeria also increased significantly, reaching $1.24 billion in February 2024, compared to $0.33 billion in January 2024. This uptick is indicative of a more stable and attractive investment climate.

Analysts point out that improved oil production and higher global oil prices have significantly boosted FX earnings.

Also, government policies aimed at attracting foreign investment, along with strategic management of the exchange rate, have played pivotal roles in this economic revival.

The CBN’s efforts to diversify the economy and boost non-oil exports are starting to yield results.

Increased diaspora remittances, facilitated by better official channels and incentives, have further contributed to the rise in FX inflows.

While challenges remain, the positive trend in FX inflows suggests a more robust and stable economy, encouraging further investment.

Consistent and transparent economic policies are expected to enhance investor trust, stabilizing the Naira and fostering a more favorable exchange rate environment.

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Naira

Naira Hits Five-Month Low Amid Dollar Demand Surge

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Naira to Dollar Exchange- Investors King Rate - Investors King

Nigeria’s naira extended its losing streak to a fifth consecutive day as it slipped to its weakest level since March despite the Central Bank of Nigeria’s (CBN) interventions.

The naira closed at 1,577.29 per dollar on Monday, down from Friday’s N1,563.8 per dollar on FMDQ.

This decline comes despite the CBN’s efforts to stabilize the currency by injecting $122.7 million through dollar sales into the market.

However, analysts argue that these amounts were insufficient to balance the robust domestic demand for the greenback.

“The CBN has been in the market selling $50 million from time to time, which is not enough,” commented Carlo Morelli, senior portfolio manager at Azimut Investment SA.

Morelli attributes the persistent pressure on the naira to capital outflows and a lack of investor confidence in the currency, despite the central bank’s commendable efforts in tightening monetary policy and reducing naira liquidity.

Central Bank Governor Olayemi Cardoso has aggressively raised interest rates in an attempt to curb inflation and stabilize the naira.

The benchmark borrowing rate now stands at 26.25%, following an increase of 14.75 percentage points since May 2022.

However, the currency has weakened by approximately 70% against the dollar since exchange-rate controls were eased last year.

“Restoring foreign exchange broad confidence is the last step, and the huge volatility in May delayed the return to normalcy,” Morelli added.

“Many foreign investors are still waiting for more evidence of stability before considering Nigeria investable.”

The naira’s decline makes it the second-worst performing currency tracked by Bloomberg in 2024, trailing only the Lebanese pound.

The recent depreciation has been fueled by both seasonal dollar demand and ongoing investor skepticism.

The central bank’s next policy decision, set for July 23, is expected to address these issues. Monday’s data showing annual inflation quickened to 34.2% in June suggests that another rate hike might be on the horizon.

In a bid to bolster the naira, the central bank has increased Nigeria’s foreign exchange reserves to $35 billion as of July 8, the highest level since May 30, 2023.

This boost is attributed to recent loans from the World Bank and the African Export-Import Bank.

Omobola Adu, an analyst at BancTrust & Co. Investment Bank, noted that recent pressure on the naira has also stemmed from corporates and individuals preparing for foreign vacations.

“Boosting the supply of FX into the country remains crucial for the government to alleviate pressure on the naira,” Adu stated.

He suggested that a eurobond or local dollar bond sale later this year, along with increased support from multilateral institutions, could help shore up reserves.

Despite these challenges, Central Bank Governor Cardoso remains optimistic, asserting that the worst of the currency’s volatility is over.

He reiterated this sentiment on Thursday in Lagos, addressing business leaders and highlighting improvements in crude output and capital inflows as positive signs.

Nigeria, Africa’s largest crude producer, relies heavily on oil sales, which account for at least 80% of its export earnings.

The country’s combined crude oil and condensate output rose to 1.5 million barrels per day in June, the highest since February, according to the upstream petroleum regulatory commission.

“While the naira may be undervalued, for the naira to stabilize and perhaps regain ground, large portfolio and capital inflows are needed,” said Samir Gadio, head of Africa strategy at Standard Chartered Plc in London.

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Forex

Zimbabwe Urged to End Dollar Dependence, Boost Local Currency

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Zimbabwe must take decisive steps to reduce its reliance on the US dollar and promote the use of its own currency, according to Information Secretary Nick Mangwana.

In an opinion piece published in the Herald newspaper, Mangwana outlined the urgent need for de-dollarization to achieve economic sovereignty, stability, and growth.

“The benefits of de-dollarization far outweigh the costs, making it an urgent imperative for Zimbabwe to break free from the US dollar grip,” Mangwana asserted.

His call comes as more than 80% of the nation’s transactions are currently denominated in dollars, a situation exacerbated by the lifting of a ban on the US currency at the start of the coronavirus pandemic in March 2020.

This move was initially intended to ease an acute shortage of foreign exchange.

Mangwana said reducing reliance on the greenback is a critical step toward regaining economic control.

“De-dollarization will help promote our local currency and diversify the country’s reserves,” he said.

By encouraging the use of the Zimbabwean dollar, the country can work towards stabilizing its economy and fostering sustainable growth.

The push for de-dollarization is part of a broader economic strategy. Last week, President Emmerson Mnangagwa hinted that Zimbabwe’s bullion-backed Zimbabwean dollar (ZiG), its sixth attempt in 15 years to establish a stable currency, may become the sole legal tender before 2030.

This move is seen as a long-term solution to the ongoing currency instability.

Mangwana’s advocacy for de-dollarization reflects a growing consensus among government officials that economic independence is vital for Zimbabwe’s future.

“Reducing our dependence on the US dollar will not be without challenges, but the long-term benefits are undeniable,” he said.

The transition to a more self-reliant economic model is expected to involve significant policy changes and strategic planning to ensure a smooth and effective implementation.

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