Nigeria Central Bank and Citibank Launches FX Futures Contracts

The Nigerian Central Bank is looking to firm up its exchange rate with the USD, introducing FX futures contracts.

Nigeria’s Central Bank has teamed up with Citibank to implement a new offering of foreign exchange futures contracts, constituting the country’s first naira-settled futures trade against the US dollar, according to a recent statement from market regulator FMDQ OTC Securities Exchange.

The inaugural trade follows after the earlier introduction of an over-the-counter (OTC) futures market on the currency earlier this week, in a bid to help oversee and manage the country’s USD demand. As such, the bank is looking to firm up the exchange rate, targeting 279 naira per USD within one month and 210 naira per USD by April 2017.

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The futures launch is important for the institutional space as it could help mitigate a run up in the exchange rate that has thus far resulted in economic headwinds for the Nigerian financial market. Just last week, the Nigerian Central Bank auctioned $3.5 billion on its futures market to wipe out a backlog of currency demand – the action followed on the heels of abolishing a 16-month-old peg that was designed to allow the naira to trade more freely on the interbank market. The bank is hoping its twin measures will alleviate the exchange rate on the USD and any other G10 currencies.

Thus far, the bank sold $697 million in one-month futures, $1.22 billion in two-month contract, as well as $1.57 billion due in three months, in order to clear a backlog of $4.02 billion of demand, according to a recent Reuters report.

In terms of early returns, the naira rose against the USD today, with its one-month contract quoting the currency at 283, indicating a growing convergence with the broader spot market, having traded the naira at 282 during London trading.

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