Dollar Liquidity Doubles as CBN Reforms Steady Naira

Dollar liquidity doubled in official foreign exchange (FX) market trading on Wednesday as Nigerian Central Bank Governor Olayemi Cardoso over the past month began to clear forward foreign-exchange contracts that have weighed on the naria.

The naira gained following a doubling of foreign-currency liquidity to $143 million, investment bank Chapel Hill Denham said in a client note on Wednesday.

That level is however still 85% below Cardoso’s target of daily FX market trading of $1 billion. The gross external reserves were last reported at US$32.88bn as of 4th December 2023.

The unit gained 3.7% to 806.7 naira per dollar at Tuesday’s close compared to previous day, according to FMDQ Group, which tracks the data.

The naira was unchanged at 1,150 naira a dollar on Wednesday in the parallel or black market.

The Central Bank of Nigeria (CBN) in November said it cleared matured foreign-exchange (FX) forward contracts with an unspecified number of banks.

Nigerian banks and others like the NSIA placed significant foreign currency (FX) with the central bank in the form of derivative transactions (including swaps and forwards).

The Nigeria Sovereign Investment Authority (NSIA), had FX swap exposure to the CBN to the tune of N167 billion ($372 million), as at December 2022.

Trading in the money market today was bullish on Wednesday as the average OMO yield contracted mildly by 1bp to 14.60%. Unlike the performance with the short tenured instruments, the average benchmark yields for FGN bonds expanded to 15.79%.