Nigeria’s foreign exchange market attracted more than $1 billion in the past two weeks as market confidence improved following the central bank’s efforts to steady the nation’s battered currency, Governor Olayemi Cardoso said.
Foreign portfolio investors “have already begun to supply the much-needed foreign exchange to the economy,” he told senators in a banking committee hearing Friday. In “the past few days, we have had over $1 billion that have come into the market,” he said, adding that this reflects “a solid sign of return to confidence in our economy.”
The Abuja-based bank implemented measures aimed at boosting market liquidity, pricing and investor confidence, which initially saw the naira plunge about 40% but has since moderated volatility and increased foreign-currency inflows.
Cardoso allowed a change in the method for setting the foreign exchange rate to reflect more efficient pricing, removed caps on transaction rates for international money transfers, barred lenders from holding excess dollars on their balance sheets, and this week raised interest rates on short-term debt obligations.
“Our measures aimed at improving US dollar supply into the Nigerian economy have significant potential in taming the volatility of the exchange rates and, in turn, moderating inflation,” Cardoso said. “However, for these measures to be sustainable, we must — as a country — moderate our demand for foreign exchange.”
Authorities in the West African nation commenced foreign-currency reforms in June to lure back investors that exited after a prolonged period of capital controls. Although the changes led the naira to slump about 50% last year, it failed to attract the needed inflows. A scarcity of dollar supply exacerbated volatility and widened spread with the parallel market rate.
The naira has traded between 1,348 and 1,479 per dollar since Jan. 29, according to Lagos-based FMDQ, which tracks the data. It narrowed the gap with parallel market rate to 2.3% from about 30% in January, as it traded 1,485 naira a dollar on the streets of the commercial capital.
