CBN begins clearing forex contracts, easing naira pressure

The Central Bank of Nigeria (CBN) has cleared matured forward foreign-exchange contracts with an unspecified number of banks in the country, a move that is expected to help stabilize the naira.

The amount of overdue forward payments is estimated at about $6.7 billion. Clearing that backlog has weighed on the naira, which fell to a record low of almost 1,000 per dollar on the official market this week.

CBN spokesman Isa Abdulmumin told Bloomberg on Thursday that the bank had taken steps on Wednesday to clear the maturing contracts with the banks. He did not say how much of the forward contracts had been cleared.

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The government allowed the naira trade more freely in June, hoping to attract more dollar inflows and improve liquidity that had dried up after years of pegging the naira to the dollar. Dollar inflows failed to materialize, however, as foreign investors instead waited for the central bank to clear a backlog of overdue dollar liabilities estimated at $6.8 billion.

The scarcity of dollars in Nigeria has forced buyers looking for hard currency onto the streets of the country’s cities, where the naira changed hands at 1,167 per dollar on Thursday.

Inflation in Africa’s biggest economy is also at the highest in more than 18 years, prompting economists to predict that the CBN will raise interest rates again at its next meeting.