May 7, 2019

The many fx interventions of the CBN

Nigeria’s fx policies are not popular with devotees of the free market (if such exists) but should be viewed in context. The country’s voracious appetite for imports has contributed to placing fx related policies on the FGN’s front burner. Over the past two years, the CBN’s fx reforms have resulted in improved fx liquidity. This is evident from the stability of the several exchange rates in operation. The CBN’s interbank/official rate (for priority transactions) is currently N307/US$. This compares with N361/US$ at the Investors and Exporters (I&E) window.


  • The CBN’s introduction of the I&E fx window (also referred to as NAFEX) in 2017 has recorded visible successes in boosting fx liquidity and aiding price discovery. Turnover at the window amounted to US$60bn in 2018, with the CBN supplying 28.3% of the total.
  • Year-to-date, total fx inflows via the I&E window stand at US$14.8bn, with foreign portfolio investors (FPIs) accounting for 62%. We note that exits by FPIs recorded in Q4 were mainly due to the US policy normalisation at the time as opposed to macroeconomic slippage or potential political risks.
  • As for participation in the capital market, the elevated returns in Nigeria’s fixed income market have contributed to increased fx inflows. However, FPIs have adopted a cautious approach towards the equity market, which is evident from their net outflows on the NSE in the first three months of the year.
  • Other fx interventions by the CBN have also supported improved fx liquidity. Its secondary market intervention sales (SMIS) amounted to US$4.2bn in Q1 2019. These sales are targeted at the real sector of the economy (including manufacturers, importers of raw materials and airlines), and totalled US$2.9bn in Q1.
  • This total includes the CBN’s recently introduced Chinese yuan interventions, which are mainly geared towards manufacturers. CNY237.6m (US$34.9m) was injected into the market by the CBN in Q1 2019. To access this segment of the window, the importer’s letter of credit must be denominated in renminbi.
  • Broadly speaking, consumer goods companies under our coverage are able to source fx at will.
  • Meanwhile, the CBN’s sales to SMEs and for invisibles amounted to US$1.32bn in the first quarter and were offered to customers through banks at N357/US$.
  • At its last meeting, the monetary policy committee noted that the relatively stable exchange rate alongside price stability gave it room to explore steps for enhancing growth. To this effect, six members of the committee (the majority) voted to trim the policy rate by 50bps.
  • Nigeria’s fx market is still vulnerable to oil price shocks and changes in FPI sentiment. Additionally, the once sizeable current-account surplus has steadily been eroded. The need for a diversification of the revenue base and steps by the FGN to stimulate export activities cannot be overemphasised.