The Nigerian official foreign exchange (FX) market witnessed a significant increase in turnover, rising to N110.35 trillion in seven months of 2024, a 171.46 percent increase from N40.65 trillion in seven months of 2023.
This is contained in the FMDQ Markets Monthly Report obtained today.
Nigeria’s foreign exchange market has witnessed a resurgence following the Central Bank of Nigeria’s (CBN) numerous policies, most especially the unification of the local currency.
The increase in foreign market turnover is a major boost that underlines growing confidence in the Nigerian economy and a continuing reduction in liquidity risks.
The reforms by the CBN governor, Mr. Olayemi Cardoso, have enabled the naira to trade more freely against the dollar.
The FMDQ Exchange report showed an increasing FX turnover, contributing significantly to overall financial instrument transactions in the secondary market.
Other instruments traded at the FMDQ market include Treasury bills, Open Market Operation (OMO) bills, CBN special bills, FGN bonds, and the money market, among other bonds.
An investigation by THISDAY revealed that FX turnover contributed about 46.3 percent to the overall N238.5 trillion in transactions reported by the FMDQ Exchange in seven months of 2024.
The breakdown of the N218.5 trillion transaction at the secondary market turnover on the FMDQ Exchange in January 2024 was N21.07 trillion, representing a month-on-month (MoM) decrease and year-on-year (YoY) increase of 41.16 percent, or N14.74 trillion, and 61.58 percent, or N8.03 trillion, from December 2023 and January 2023 figures, respectively.
In February 2024, it stood at N40.31 trillion, representing an MoM increase of 91.31 percent, or N19.24 trillion, from January 2024.
According to the FMDQ report, the overall secondary market turnover in March 2024 was N48.87 trillion, representing an MoM and YoY increase of 21.22 percent, or N8.55 trillion, and 100.67 percent, or N24.51 trillion, from February 2024 and March 2023 figures, respectively.
In April 2024, the total secondary market turnover on the FMDQ Exchange was N27.50 trillion, representing a MoM decline of 43.73 percent, or N21.37 trillion, and a YoY increase of 119.0 percent, or N14.94 trillion, from March 2024 and April 2023 figures, respectively.
However, in May 2024, the total secondary market turnover on the FMDQ Exchange was at N41.69 trillion, representing an MoM increase of 51.62 percent, or N14.19 trillion, and a YoY increase of 164.26 percent, or N25.92 trillion, from April 2024 and May 2023 figures, respectively.
Between June and July 2024, total secondary market turnover was N28.43 trillion and N30.63 trillion, respectively.
Amid increasing FX transactions, the naira against the dollar has depreciated by 57.5 percent year-to-date (YTD) to N1,560.32 against the dollar as of July 2024 from N990.96 against the dollar in January 2024.
“Further, exchange rate volatility increased in July 2024 as the Naira traded within an exchange rate range of N1,500.32–N1,621.12 compared to N1,473.66-N1,510.10 recorded in June 2024,” the report added.
Meanwhile, analysts believe there may be even more dollars to come as the banks unwind the liquid portions of their long balance sheet foreign exchange positions. That should spur further gains in the exchange rate.
Business activities rebounded after the federal government announced the unification of the local currency and the removal of fuel subsidies.
The CBN recently ordered banks to limit their foreign exchange exposure to curb risks to the financial system, in the latest move to improve liquidity in the country’s volatile currency market.
According to analysts at United Capital, the CBN stepped up efforts to reform the exchange rate framework following last year’s unification of the multiple exchange rate windows, and the removal of exchange rate ceilings on interbank transactions and international money transfers in February 2024.
The firm in a report titled, “Balancing Act: Nigeria’s Path to Economic Stability HY-2024 Economic Outlook,” stated that transparency in the official market also improved by publicizing the methodology for calculating the overnight exchange rate.
“These measures, along with a further devaluation in January 2024, have successfully closed the gap between the official and parallel exchange rates as of February 2024. However, capital controls remain, and the CBN is now focusing on attracting foreign capital through a more orthodox economic policy framework.”
“The large differential between the official and parallel market rates has collapsed. Average daily FX turnover at the official FX window rose sharply from 2H23, and there has been clearance of $4.5 billion of the backlog of unpaid FX forwards (the validity of the outstanding $2.2 billion was under scrutiny by CBN), paying down NDFs of $1.3billion by the CBN and weekly sales of FX to Bureau De Changes (BDCs) were reinstated (having been suspended since 2021),” they explained.
The report added that H1 2024 has witnessed significant reforms by the CBN in the FX market, aimed at achieving rate convergence and mitigating speculative activities to stabilize the naira.
“The convergence of FX rates was facilitated by the official devaluation of the NAFEM rate, the imposition of benchmark rate restrictions on the sale of FX by BDCs, and the settlement of FX backlogs. Additionally, the CBN imposed limits on lenders’ net open positions and raised the share capital guidelines for BDCs by increasing the FX selling limit to $20,000 at N1,301/$.
“Furthermore, the CBN undertook a series of monetary policy adjustments, including revising the Monetary Policy Rate (MPR) from 18.75 cents to 22.75 cents, subsequently raising it to 24.75 cents, and eventually to 26.25 percent. During this period, the CBN also sold $10,000 to BDCs at a rate of $1,101/$. These measures collectively aim to enhance liquidity, control inflation, and foster a more stable and predictable FX market environment.
“These strategic interventions by the CBN were critical in addressing the challenges of FX market volatility, supporting the broader objective of macroeconomic stability in Nigeria. The adjustments to the MPR and FX selling limits reflect the CBN’s commitment to employing direct and indirect tools to influence market dynamics and achieve its monetary policy goals,” the report added.
To ensure the gap between the official and parallel market rates does not start to widen again, the CBN has to do everything possible to encourage inflows to the markets through foreign portfolio investors (FPIs) and Nigerians, sources told THISDAY.
“If supply is sustained, we are not likely to see a widening gap,” one source told THISDAY.
Speaking on increasing foreign exchange turnover traded in the period under review, the Vice President, of Highcap Securities Limited, Mr. David Adnori, attributed the growth recorded in the total foreign exchange turnover in the first for seven months of 2024 to increasing business activities amid a double-dight inflation rate and a steady hike in MPR by the monetary committee of the CBN.
