Naira anticipated to rebound after CBN settles forex forward contracts

The Naira is expected to strengthen in the coming months following the Central Bank of Nigeria (CBN)’s recent settlement of over $1.3 billion in foreign exchange (forex) forward contracts. Analysts from Rand Merchant Bank in Lagos have projected a positive outlook for the naira as the volume of unsettled forex contracts is significantly reduced.

Last week, the CBN settled $1.3 billion worth of forex forward contracts. This substantial settlement leaves only $198 million in unpaid forex contracts between now and December. The reduction in outstanding contracts is anticipated to alleviate some of the pressure on the naira, aiding its recovery against the dollar.

The naira depreciated by 0.06%, closing at N1,476.95 to the dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEM).
Parallel Market: The naira closed at N1,490 to the dollar, indicating a near convergence between the official and parallel market rates.

The CBN has implemented several strategies to boost dollar liquidity and support the naira:

Forex Availability: The CBN authorized International Oil Companies (IOCs) operating in Nigeria to sell 50% of their bulk forex proceeds in the domestic forex market. Previously, IOCs were required to repatriate 50% of forex proceeds immediately and the remaining 50% after 90 days.

PTA/BTA Payments: The CBN mandated that all authorized dealer banks process Personal and Business Travel Allowances (PTA/BTA) through electronic channels, such as debit or credit cards, rather than cash. This move aims to ensure transparency and stability in the forex market and prevent malpractices.

Despite these measures, importers and small and medium enterprises (SMEs) face challenges in securing necessary funds due to dollar scarcity in both the official and black markets. Legitimate demands driving this need include applications for Business Travel Allowance (BTA), Personal Travel Allowance (PTA), school fees, and medical fees.

The street traders have observed that the scarcity of dollars, coupled with high demand, is driving up the price of dollars. One trader noted, “The problem is that dollars are scarce in the market. People are not bringing dollars and demand is so high, that is why the price is going up.”