As part of its efforts aimed at bolstering liquidity and stabilizing the foreign exchange (FX) market, the Central Bank of Nigeria (CBN) has announced that International Oil Companies (IOCs) can sell 50 per cent balance of their repatriated export proceeds to authorized forex dealers.
Despite improved liquidity and the apex bank’s efforts to impose various restrictions on BDC activities, such as street trading, international outward transfers, and prohibition of the local currency’s presence on virtual P2P trading platforms, the naira has still been under tremendous pressure in the country’s fragile foreign exchange market.
Data from the FMDQ revealed that the naira posted a monthly loss of more than five per cent against the haven currency, settling at N1,485.99 against the greenback at the last day of May, weaker than the N1,402.67/$ quoted at the beginning of last month.
The new directive is expected to significantly increase forex availability in the market, thereby aiding in exchange rate stabilization.
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According to the circular, if an IOC does not have any outstanding financial obligations to settle with the repatriated funds during or after the 90-day retention period, they are permitted to sell the remaining 50 per cent balance entirely to authorized dealers.
This provision ensures that IOCs can efficiently manage their forex without unnecessary restrictions, promoting better liquidity management.
The apex bank earlier stopped IOCs operating in Nigeria from immediately remitting 100 per cent of their forex proceeds to their parent company abroad.
According to the initial circular, IOCs are allowed to repatriate only 50 per cent of their proceeds immediately while the other 50 per cent will be repatriated 90 days from the day of inflow.
It further issued clarifications on the utilization of foreign exchange proceeds by IOCs.
The CBN’s new directive is poised to have a significant impact on the Nigerian forex market. By allowing IOCs to sell a substantial portion of their repatriated proceeds, the directive aims to boost forex liquidity, helping to mitigate volatility and foster a more stable economic environment.
In May, the total amount of dollars offered by willing vendors and buyers reached $4.60 billion.
The naira experienced a tumultuous week in the foreign exchange market, culminating in a relatively stable close at N1,485.99/$1 on May 31, 2024, according to data from the FMDQ.
The currency’s performance last month reflects a significant struggle to maintain its value amidst fluctuating forex turnover and investor sentiment.
The fluctuating forex turnover underscores the uncertain market conditions and the challenges faced by CBN in managing the country’s exchange rate.