‘CBN’s New FX Code Drives Market Recovery’ — Naira Appreciates To N1,474 At Official Window

Since its introduction, the FX Code has already fueled a resurgence in the value of the naira across both the official and parallel markets, signaling renewed optimism among market participants. However, the long-term success of this initiative hinges on strict compliance by banks and other financial institutions with the implementation guidelines set by the apex bank. As the CBN continues to drive reforms in the forex market, all eyes are on how effectively financial players align with the new framework to ensure sustained stability and economic growth.

Across the globe, foreign exchange markets thrive on ethics, transparency, and regulatory compliance, operating under the vigilant oversight of central banks. These fundamental principles not only shape their operations but also serve as a benchmark for measuring their effectiveness and stability.

Nigeria’s foreign exchange market is no exception. In a decisive move to reinforce integrity and efficiency, the Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, last week unveiled the Nigeria Foreign Exchange Code (FX Code). At the heart of this initiative lies a commitment to fairness, transparency, and accountability—critical pillars designed to bolster investor confidence and drive sustainable economic growth.

He emphasised that the FX Code was built on six core principles: ethics, governance, execution, information sharing, risk management and compliance, as well as confirmation and settlement processes.

These principles, he explained, aligned with international standards while addressing the unique challenges within Nigeria’s foreign exchange market.

According to Cardoso, “The FX Code represents a decisive step forward, setting clear and enforceable standards for ethical conduct, transparency, and good governance in our foreign exchange market. The era of opaque practices is over. The FX Code marks a new era of compliance and accountability. Under the CBN Act 2007 and BOFIA Act 2020, violations will be met with penalties and administrative actions.”

Impact on market operations

Naira Strengthens to Eight-Month High as FX Code Boosts Market Confidence:

The naira has continued its upward momentum across both the official and parallel markets following the launch of the FX Code last week. On Wednesday, the local currency surged to its strongest level in nearly eight months, closing at N1,580 per dollar in the parallel market. This sustained rally reflects renewed investor confidence and market optimism, signaling a positive shift in Nigeria’s foreign exchange landscape.

Analysts at Cordros Securities have observed a significant appreciation of the naira, which strengthened by 3.8% week-on-week to N1,474.78/$ at the Nigerian Autonomous Foreign Exchange Market (NAFEM). This sharp uptrend is largely attributed to the Central Bank of Nigeria’s (CBN) recent policy interventions, particularly the introduction of the FX Code. The initiative has reshaped market dynamics, boosting transparency and investor confidence while reinforcing the naira’s resilience in the foreign exchange market.

The latest movement marks a return to that range, reflecting the impact of recent monetary and foreign exchange measures introduced by the CBN to stabilise the currency and improve market confidence.

Managing Director, Afrinvest West Africa Limited, Ike Chioke, said naira gained 4.3 per cent month-on-month against the greenback to close at N1,474.78/$1.00. Similarly, parallel market rate appreciated 1.4 per cent to N1,610.00/$1.00.

He projected a sustained positive naira performance this month, supported by CBN’s efforts at entrenching transparency in market operations. “In the new month, we expect the naira to remain on a positive trajectory bolstered by CBN’s effort at currency stability,” he said in an emailed note to investors.

The recent surge in the naira’s value has been bolstered by increased inflows from Foreign Portfolio Investors (FPIs), substantial contributions from International Oil Companies (IOCs), and the Central Bank of Nigeria’s (CBN) $18.40 million intervention to authorized dealers.

Analysts have also pointed to the renewed interest of FPIs in the foreign exchange market, driven by improved market confidence, a more transparent FX framework, and strengthening macroeconomic conditions. Combined with the CBN’s sustained interventions, these factors are expected to provide continued support for the naira’s stability, reinforcing a more resilient and efficient foreign exchange market.

In his intervention, the President, Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, attributed the ongoing rebound of the naira against dollar and other world currencies to the CBN’s policies.

Gwadabe hinged the naira rally to the newly implemented Foreign Exchange (FX) Code, rising investors confidence and policies supporting more dollar inflows through diaspora remittances.

He backed the apex bank’s position that the FX Code is comprehensively addressing various aspects of market conduct and practice, it is not intended to be exhaustive. He said the policy authorises the CBN to establish and enforce directives regarding the standards for financial institutions under which FX deals are to be conducted.

Gwadabe said the code will further entrench transparency and accountability in the FX market, and continually sustain naira rally.