The Central Bank of Nigeria infuses $500 million into the foreign exchange market

Yesterday, the Central Bank of Nigeria (CBN) made a significant move by injecting $500 million into the Foreign Exchange (forex) market, thereby reducing the $10 billion backlog of verified forex transactions by $2.5 billion.

This action follows the CBN’s payment of $61.64 million on January 7, with an additional $2 million recently paid off the forex backlog. The bank’s phased payments demonstrate its commitment to resolving the ongoing liquidity issues that importers and businesses face. Mrs. Hakama Sidi Ali, the acting Director of Corporate Communications at CBN, confirmed this in a statement yesterday.

This latest financial intervention is aimed at outstanding commitments in the manufacturing, aviation, and petroleum sectors. Mrs. Ali emphasized the bank’s resolve to clear the backlog within a reasonable period and discussed the CBN’s broader strategy for a stable and effective FX market.

She highlighted the strategy’s focus on simplifying the various exchange rates, enhancing transparency, and reducing arbitrage opportunities. The CBN expects these reforms to lead to a more stable exchange rate environment, thus attracting foreign investment and boosting investor confidence.

Mrs. Ali underlined the importance of responsible behavior and strict adherence to regulations by all forex market participants. She also stressed the need for transparency in establishing fair exchange rate determinations, which is crucial for the stability of businesses and individuals.

While the CBN’s recent actions indicate significant progress in addressing the $10 billion backlog, Mrs. Ali acknowledged the challenges ahead. CBN Governor Yemi Cardoso previously emphasized the importance of clearing the backlog as a fundamental step towards stabilizing the exchange rate.

The CBN’s ongoing efforts are expected to positively impact the forex market and contribute to overall economic growth, despite the current challenges. However, details about the exact size and composition of the CBN’s forex backlog remain limited.

The CBN has been allocating funds in installments to various sectors but has not disclosed the total outstanding amount to date. Key affected sectors include manufacturing, aviation, and petroleum, each facing unique forex access challenges.

A CBN source suggested that limited information on the total backlog might be due to market sensitivity, as revealing the full extent could lead to a higher demand for forex and potentially weaken the naira. The CBN’s strategic fund releases aim to minimize market disruption and ensure effective allocation.