The naira, Nigeria's currency, rebounded in the parallel market on Thursday as commercial banks rushed to sell off their excess foreign exchange (FX) holdings ahead of a deadline set by the Central Bank of Nigeria (CBN).
The CBN had instructed banks to sell all excess FX stocks by February 1, 2024, and warned against hoarding foreign currencies for profit. The move comes as the CBN aims to stabilize the country's volatile exchange rate.
This surge in forex sale activities led to an increase in the naira's value at the parallel market. Bank officials, particularly those in the treasury departments, were under pressure to meet the new regulatory requirements by the deadline. The CBN's circular, titled "Harmonization of Reporting Requirements on Foreign Currency Exposures of Banks," expressed concern over banks holding large foreign currency positions, which exposes them to foreign exchange and other risks. Banks with Net Open Positions (NOPs) exceeding the CBN's limits were directed to adjust their positions and comply with the new regulations by February 1.
The CBN's directive came just days after it issued a circular warning against reporting false exchange rates. It also followed the adjustment of the methodology used to calculate the official exchange rate by the FMDQ Exchange, which led to a significant increase in the official exchange rate. The CBN's latest move aims to unify the official and parallel market rates of the naira.
As a result of the increased forex sales, the naira recorded a sharp rebound in the official market. Bureau De Change operators in Lagos, Kano, and Abuja also rushed to sell their dollar holdings amid concerns that the local currency's gains might continue in the coming days. The naira traded between N1,300/$ and N1,350/$ in the parallel market in Abuja.
Bank officials, speaking anonymously, acknowledged the need to ensure compliance with the new FX prudential limits set by the CBN.