The Naira on Thursday appreciated, rising to an eight-month high of 1,120 per dollar on the parallel market, popularly called black market, driven by a series of foreign exchange (FX) reforms of the Central Bank of Nigeria (CBN) that has unlocked dollar liquidity.
With the current exchange rate the Naira has gained 62.95 percent (N705) over the dollar compared to the level of N1,825/$1 in February 2024, according to the data compiled from online platforms and street traders.
“The dollar has fallen because there is no demand. The market is calm due to the holidays and there are enough dollars in the market now,” one trader said.
Nigeria’s currency on Monday before the holidays strengthened to 1,230.61 per dollar on the official FX market, despite the declining external reserves.
After trading on Monday, the Naira gained 1.66 percent as the dollar was quoted at N1230.61, stronger than N1,251.05 quoted on Friday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to the data released by the FMDQ Securities Exchange.
The intraday high closed at N1,261 per dollar on Monday, stronger than N1,281 closed on Friday. The intraday low appreciated to N1,200 from N1,220 on Friday.
Dollar supply by willing buyers and willing sellers dropped by 49.43 percent to $125.55 million on Monday from $248.27 million recorded on Friday.
The external reserves, which gives the Central Bank of Nigeria (CBN) the firepower to defend the Naira have been declining, following the apex bank’s interventions to stabilise the currency.
Data from the CBN showed that Nigeria’s foreign currency reserves declined by 2.95 percent in the last 10 days to $33.434 billion as of April 4, 2024 compared to $34.449 billion in March 18, 2024.
The apex bank last month said it has successfully resolved all valid foreign exchange backlogs, as pledged by Governor Olayemi Cardoso, addressing inherited claims amounting to US$7 billion.
On June 14, 2023, the CBN enacted several significant reforms, including the abolishment of market segmentation, consolidation of all segments into the Investors & Exporters window (now called the Nigerian Autonomous Foreign Exchange), and the reintroduction of the Willing Buyer, Willing Seller framework.
In August 2023, the CBN resumed Forex sales to BDCs but implemented a restriction on the buying and selling spread by BDCs to +/-2.5 percent of the weighted average of transactions executed the previous day on the I&E window.
In January 2024, the apex bank imposed a limit on the Net Open Position (NOP) of banks in Nigeria, setting it at a maximum of 20 percent short or zero percent long holding of foreign currency assets and liabilities.
Additionally, the CBN directed International Money Transfer Operators (IMTOs) to quote an exchange rate for Naira payout to beneficiaries based on the prevailing market price.
In February 2024, the CBN removed caps on the spread on interbank Forex transactions and lifted restrictions on the sales of interbank proceeds.
Furthermore, the CBN restricted the payout of Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) to electronic channels only.
According to FSDH Research, the implementation of these measures has contributed to the reduction of volatility in the Naira in the FX markets.
By March 2024, the volatility of the Naira had further decreased following additional reforms by the CBN aimed at enhancing transparency and inflows into the FX market.
On March 28, the NAFEM closing rate stood at N1309.4, reflecting a significant appreciation from its peak of N1,650 on February 26, 2024, a report by FSDH stated.
Analysts at FSDH expressed optimism, stating, “We believe that the recent FX reforms, coupled with high interest rates and improved oil production, will bring stability to the FX market.”
