Dollar supply rises by $172.44m in H1

…External reserves up 3.54%

Dollar supply at the official foreign exchange (FX) market surged by $172.44 million in the first half (H1) of 2024.

According to the data compiled by the FMDQ Securities Exchange Limited, dollar supplied on June 28, 2024, the trading day for H1, was $187.82, up (1,121.19 percent), from $15.38 million supplied on January 2, 2024, the first trading day of the year.

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Data from the Central Bank of Nigeria (CBN) revealed an increase in foreign remittances for May 2024, totaling $365 million. The figure marks an 80 percent rise when compared with the $202.89 million recorded in May 2023.

Analysts attribute the growth to the increasing confidence and reliance on remittances as a crucial source of foreign exchange for the Nigerian economy. The boost in remittances reflects the contributions of Nigerians in the diaspora and highlights the vital role these funds play in supporting local households and businesses.

Nigeria’s external reserves, which gives the Central Bank of Nigeria (CBN) the firepower to defend the naira, also increased during the period under review.

Data from the CBN’s website revealed that foreign currency reserves grew to $34.19 billion as of June 28, 2024 from $33.02 billion, in January 2024, the beginning of the year.

The naira lost 34.33 percent as the dollar was quoted at N1,505.30 on June 28, 2024, the last trading day of the first half of the year, compared to N988.46 quoted on the first trading (January 2, 2024) day of the year, at the Nigerian Autonomous Foreign Exchange Market (NAFEM), data from the FMDQ indicated.

At the parallel market, popularly called black market, the naira lost 21.05 percent, as the dollar closed the period at N1,520 on June 28, 2024 as against N1,200 quoted at the beginning of the year.

This is despite the increases in dollar supply, remittances and foreign currency reserves.

“The Nigerian foreign exchange market is currently facing increased demand pressures, causing a continuous decline in the value of the naira. Factors contributing to this situation include speculative forex demand, inadequate forex supply, increased capital outflows, and excess liquidity,” Olayemi Cardoso, governor of the CBN, said in February 2024.

During the period under review, the central bank introduced several policy reforms to improve liquidity in the FX markets in the short, medium, and long term.

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Some of the reforms include: unification of exchange rates window, liberalisation of FX market, clearing of FX backlog obligations to banks and airlines, introduction and now the removal of Price Verification System (PVS), limits on banks Net Open Position, Lifting the daily cap of N2 billion on remunerable Standing Deposit Facility (SDF) and reform of the BDC segment.

Other measures include: promotion of a willing buyer willing seller market; removal of all limits on margins for the International Money Transfer Operator (IMTO) remittances; introduction of a two-way quote system and the broad reforms in the Bureau De Change (BDC) segment of the market to restore stability, enhance transparency, boost supply, and promote price discovery in the Nigeria Autonomous Foreign Exchange Market.

Also, as part of efforts to rein in inflation and stabilise the naira, the Monetary Policy Committee (MPC) has between February and May 2024, raised the MPR by 750 basis points to 26.25 percent.