Naira Jumps as CBN Lifts FX Restrictions on 43 Items
The Nigerian naira jumped across the foreign exchange market as the Central Bank of Nigeria (CBN) lifted restrictions on 43 items on FX restriction lists 8 years later. Data from FMDQ showed that the local currency appreciated against the US dollar by 2.27% at the Investors and Exporters window, closing at N759.20.
MarketForces Africa reported that the exchange rate at the organised FX market had closed at N776.80 per greenback the previous day.
In the parallel market, the Naira appreciated by 0.49% to close at N1,035 against the US dollar as news that the restriction on items banned has been lifted by the monetary authority in an effort to achieve rate convergence.
In a circular, the CBN has now granted importers of the 43 items previously restricted in the 2015 Circular the ability to purchase foreign exchange in the Nigerian Foreign Exchange Market.
The apex bank also reiterated its commitment to clearing the existing FX backlog, estimated at $6.5 -$10.0 billion, while working to improve overall market liquidity.
“To our minds, this is a move to gradually improve confidence in the FX market, which has been weighed by long-dragging illiquidity and unorthodox policies. We recall that the lifted ban was instituted due to a material plunge in FX inflows.
“Thus, to forestall the re-occurrence of the underlying drivers of dollar demand management and unorthodox FX policies in Nigeria, the supply of FX will have to improve sooner rather than later”, CardinalStone said in a commentary note.
On another positive side, the Organisation of Petroleum Exporting Countries (OPEC) latest report showed that Nigeria’s crude oil production increased in September 2023 amidst a price resurgence in the global market.
Detail from the commodities market showed that WTI crude futures staged a recovery, surpassing $84 per barrel on Thursday. This resurgence followed a 2% dip in the preceding session.
Analysts said the rebound was attributed to the collaborative efforts of major oil players, Saudi Arabia and Russia, to shore up the oil market. Simultaneously, investors were keeping a vigilant eye on unfolding developments in Israel and Gaza, which can significantly influence market dynamics.
“Nigeria must pump more oil to recover from FX shocks and fiscal slippages”, LSintelligence Associates told MarketForces Africa in an email.
CardinalStone said, “To improve FX supply, the CBN and fiscal authorities may have to evaluate the possibility of raising dollar facilities (via Diaspora bonds, Eurobonds or concessionary loans from bilateral/multilateral institutions), asset sales (full or partial), among others.
“Curbing oil thefts, enhancing domestic oil production efficiency, and issuing new oil mining licenses are potential short-to-medium solutions.
“We believe that the efficacy of the new policy is likely to be subject to the extent of improvement in FX supply at the Investors and Exporters window. This view considers the anticipated increase in FX demand at this window following the lifting of the ban”.
Naira Devaluation Deepens Economic Crisis in Nigeria
Detail from the Circular
The Central Bank of Nigeria (CBN) will continue to promote orderliness and professional conduct by all participants in the Nigerian Foreign Exchange Market to ensure market forces determine exchange rates on a Willing Buyer – Willing Seller principle.
2. The CBN reiterates that the prevailing Foreign Exchange (FX) rates should be referenced from platforms such as the CBN website, FMDQ, and other recognised or appointed trading systems to promote price discovery, transparency, and credibility in the FX rates.
3. As part of its responsibility to ensure price stability, the CBN will boost liquidity in the Nigerian Foreign Exchange Market by interventions from time to time. As market liquidity improves, these CBN interventions will gradually decrease.
4. Importers of all the 43 items previously restricted by the 2015 Circular referenced TED/FEM/FPC/GEN/01/010 and its addendums are now allowed to purchase foreign exchange in the Nigerian Foreign Exchange Market.
5. The CBN is committed to accelerating efforts to clear the FX backlog with existing participants and will continue dialogue with stakeholders to address the issue.
6. The CBN has set as one of its goals the attainment of a single FX market. Consultation is ongoing with market participants to achieve this goal.