By John Ikani
Nigeria’s central bank on Thursday, announced its intention to occasionally intervene in the foreign exchange market with a view to enhancing liquidity.
The apex bank has also announced an end to an eight-year prohibition on 43 specific items that were previously denied access to forex through official channels.
The prohibitions, covering items like rice, cement, and poultry, were imposed during the tenure of former central bank Governor Godwin Emefiele as a measure to support the naira currency.
The decision to lift the ban has been welcomed by analysts and investors who had expressed concerns about the central bank’s persistent maintenance of certain capital controls.
The Central Bank of Nigeria (CBN) also reaffirmed the commitment made by the new Governor, Olayemi Cardoso, last month to swiftly settle the bank’s outstanding forex obligations to local lenders, which are estimated at approximately $7 billion.
Nigeria, the largest economy in Africa, has grappled with chronic shortages of the US dollar in the official market. Trading volumes in this market have steadily declined, causing the naira to hit an all-time low against the dollar. On Thursday, street trading indicated a 37% premium over the official exchange rate.
The central bank’s spokesperson, Isa Abdulmumin, stated, “In line with its mandate to ensure price stability, the CBN will inject liquidity into the Nigerian Foreign Exchange Market through occasional interventions.”
He added, “These CBN interventions will gradually decrease as market liquidity improves.”
The naira has been losing value in the parallel market due to speculation, and excess demand has been channelled into the informal market. This has widened the gap with the official market, where trading restrictions were lifted in June.
The recent measures introduced by the central bank are considered “a positive step” by Charlie Robertson, the head of macro strategy at FIM Partners, a UK-based firm, to unify exchange rates and alleviate pressure on the naira in the parallel market. Importers of the previously restricted 43 items can now access dollars more freely.
However, there is still more to be done. To mitigate forex shortages in the official market, the CBN may need to indicate that commercial banks can offer a less favourable naira-to-dollar rate, which would help boost the supply of dollars, according to Robertson.
The central bank emphasized its commitment to promoting orderliness and professional behaviour among all market participants. This is to ensure that exchange rates are determined by market forces on a “willing buyer-willing seller” basis.
The central bank also reiterated that foreign exchange rates should be obtained from its website and other recognized trading systems. This is intended to enhance “price discovery, transparency, and credibility in the forex rates.”
Abdulmumin mentioned that the central bank is actively pursuing a “single forex market” and is in consultation with market participants to achieve this objective.
