Nigeria’s central bank has sold around US$50M to foreign investors on the spot and forward markets, in what the bank called a test trade to gauge the level of dollar demand on the currency market, traders said on Wednesday.
The central bank has gradually restarted dollar sales after it halted supplies following a coronavirus-induced lockdown to slow the spread of the virus, which also reduced its activities.
Dollar demand has been swelling and piling pressure on the naira. Importers with past-due obligations have scrambled for hard currency while providers of foreign exchange, such as offshore investors, have exited.
The central bank offered a 150-day forward on the currency on Monday and also sold forex on the spot market, traders said, quoting the central bank as saying that the backlog demand was not huge.
A central bank spokesman confirmed Monday’s intervention on the spot market, widely quoted by investors and importers, saying it had helped the naira rebound from a low of 480 naira on the black market.
Foreign investors have sold Nigerian assets since February because pandemic lockdowns stalled economic activity and triggered a crash in the price of oil, Nigeria’s main export.
Analysts estimate there is pent up demand of between US$1.5B and US$1.8B from investors looking to exit Nigeria, whose economy faces recession in the third quarter.
The central bank has in the past urged investors to be patient, saying funds can exit in an orderly fashion. On Wednesday, the spot market traded US$38.46M.
The naira firmed almost 10% on the black market to 435 against the dollar on Tuesday on anticipation of resumed dollar sales. The dollar was quoted at 380.50 naira on the official market.
The non-deliverable forwards (NDF) market traded in London, which gives an indication of where the currency could trade, quoted the naira at 403 to the U.S. dollar in three months’ time.
The naira is seen past 400 on the futures market in January.