The Central Bank of Nigeria (CBN) has escalated efforts to clear backlogs of foreign exchange (FX) forwards, signaling positive prospects for the strengthening of the naira in the near future.
Report reveal that a notable amount of FX forwards were successfully cleared last week, with a commitment from the apex bank to settle a substantial portion of outstanding FX forward obligations before the end of the month. This initiative has resulted in an infusion of improved liquidity into the FX market, sparking optimism among financial experts.
According to a Chief Executive Officer of a leading bank, smaller Nigerian banks and foreign banks have seen approximately 80% of their FX forwards cleared. However, for larger Nigerian banks, the clearing process has commenced, with the CBN having cleared about 5-10% of their FX forwards. A plan has also been outlined to clear 30% for the big banks in the next two weeks, injecting liquidity into the system and fostering increased confidence.
“The plan is that in the next two weeks, they would clear 30 per cent for the big banks. So, they are injecting liquidity into the system and there is a scheme of arrangement to take care of the balance.“The banks are happy and this has certainly started driving up confidence and we are certain that in the coming days, FX speculators would lose their shirts.“Realistically, the naira should be trading between N700 and N800/$ if not for the activities of those that are pushing the speculative attack on the naira. So, I am telling them to be careful and they must desist from such act,” the officer chided in.The CEO cautioned currency speculators against engaging in economic sabotage, emphasizing that the naira could rebound in the coming days. Expressing confidence in the federal government’s efforts to curb economic leakages, particularly addressing issues related to crude oil theft, the source predicted a continuous improvement in FX supply.
Market analysts are optimistic about the potential appreciation of the naira against the dollar, anticipating a positive shift in the exchange rate as FX inflow improves. The parallel market recently closed with the naira trading at N1,110 to a dollar.
The CBN initiated the clearance of FX forward contracts around 10 days ago, aiming to rebuild confidence in the Nigerian economy. These forward contracts are bilateral agreements that lock in the exchange rate for future currency transactions, providing a structured approach to addressing overdue payments and stabilizing the naira.
Olawale Edun, Minister of Finance and Coordinating Minister of the Economy, highlighted the need to address overdue forward payments, amounting to $6.8 billion, to pave the way for a more stable naira. He emphasized the importance of liquidity and expressed confidence that reforms, both fiscal and monetary, would encourage increased FX flows.
He said, “The issue we have now is that the market is not liquid enough.“We are committed to encouraging liquidity based on reforms that have been made at the moment, on the fiscal side and the monetary side. And together with the restoration of trust and confidence we think the FX flows will return.”CBN Governor, Mr. Olayemi Cardoso, acknowledged unsettled obligations by the CBN and emphasized the priority of addressing these obligations to succeed in the foreign exchange market. The ongoing efforts align with a broader strategy to enhance the economic landscape and inspire confidence in the Nigerian financial system.
He added; “We are aware that there are unsettled obligations by the CBN. Whether it is $4 billion, $5 billion or $7 billion, I don’t know, but definitely the immediate priority is to ascertain the extent.“We need to find a way to take care of that. It will be naive for us to be expecting to succeed if we are not able to handle that side of the foreign exchange market.”Don’t miss out on: Naira Falls to N1,140/$ on Black Market, Intensifies FX Market Pressure
