Following the Central Bank of Nigeria’s decision to allow International Oil Companies (IOCs) to resume dollar sales to banks, these companies will now receive more Naira for their dollar earnings. This move aims to inject dollar liquidity into the Investors & Exporters window, benefiting both the IOCs and the overall market.
Previously, IOCs were obligated to sell their dollars to the CBN at a lower rate before the naira float, resulting in reduced Naira earnings. However, with the new policy, they can now sell their dollars at a rate that reflects a depreciation of over 60 percent compared to the previous rate.
This change not only provides relief to the IOCs but also improves dollar liquidity in the Investors & Exporters window, which is crucial for attracting foreign investors back to Nigeria. The expectation is that this will address the existing backlog of US dollar demand in the market.
The decision to lift the restrictions on dollar sales is part of the CBN’s efforts, under the leadership of acting governor Folashodun Shonubi, to reverse the policies of the previously suspended governor, Godwin Emefiele. President Bola Tinubu appointed Shonubi in late May with a commitment to thorough house cleaning of monetary policy.
Since the float of the naira, the CBN has shifted its focus towards boosting dollar supply to alleviate pressure on the currency, which experienced a sudden devaluation of over 60 percent as a result of the long-overdue reform.
As a result of this development, the naira gained 1.2 percent at the Investors & Exporters window, while the foreign exchange turnover increased by 20 percent. These changes indicate positive market reactions to the new policy.
Under Emefiele’s leadership, IOCs were previously mandated to sell their dollars exclusively to the CBN, creating a dollar shortage and causing disparity between the official rate and the parallel market rate. Such policies inadvertently impacted investor confidence.
Reversing these harmful policies and addressing other areas of concern, such as the blacklist of certain items, is essential for restoring confidence in the CBN’s currency reform efforts, according to foreign fund managers and market participants.
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