By Chinwendu Obienyi

There are convincing reasons to believe that the efforts by the Federal Government as well as the Central Bank of Nigeria (CBN) to support the naira appears to be yielding results as the Nigerian currency appreciated by 12 per cent week-on-week (w/w) to close at N1,431.49/$1 at the Nigerian Autonomous Foreign Exchange Market (NAFEM).

This is the first time in a month that the naira would gain remarkable strength, since it exchanged above N1,000/$1 on February 5, 2024, as the apex bank intervened in the market thrice within the week with total sales of $195 million which resulted in a rally that lasted for seven days despite the country’s gross reserves level decreasing by $96.41 million w/w to close at $34.32 billion.

Data obtained from the FMDQ website, where the exchange rate is officially set, revealed that activity level in the NAFEM window increased 47.2 per cent w/w to $1.5 billion. In the currency market, the Naira appreciated 12 per cent w/w against the dollar to N1,431.49/$1 whilst it gained 6.7 per cent against the dollar to close N1,495/$1 at the parallel market.

At the NAFEM, total turnover (as of 21 March 2024) increased by 16.4 per cent  week-to-date (WTD) to $1.21 billion, with trades consummated within the N1,300.00 – N1,640.00/$ band. In the Forwards market, the naira rates recorded appreciation across the 1-month (+9.6 per cent to N1,460.81/$), 3-month (+9.4 per cent to N1,500.26/USD), 6-month (+8.4 per cent to N1,562.99/$ and 1-year (+6.5 per cent to N1,705.82/USD) contracts.

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This development would come as a significant relief to the CBN who have been facing scrutiny over the currency’s depreciation after the introduction of the willing buyer, willing seller model, aimed at creating a more transparent and market-driven forex trading environment.

However, following the latest Monetary Policy Committee (MPC) meeting, the CBN forged ahead with its actions in the FX market while increasing its intervention to stabilize the naira. These include an increase in yields on naira-denominated assets to attract both domestic and international investors and curb currency speculation, addressing FX backlogs, the incorporation of BDCs into the CBN’s foreign exchange framework and retail sale of dollars to banks with the range of N1,300/$1 – N1,400/$1. With the MPC meeting which is expected to kick off today, it is expected that there may be strong emphasis from the committee on the need for the apex bank to maintain its reforms and its intervention in the FX market to ensure stability of the local currency.

Reacting to the development, economic analysts noted that the CBN’s increased intervention in the FX market last week, including the payment of the last portion of the FX backlogs – $1.50 billion and the commencement of retail sales of US dollars to banks within the range of N1,300/$ – N1,400/$ to boost confidence in the FX market and stabilise the naira.

Analysts at Cordros Research said, “While the CBN is expected to continue its FX intervention in the near term, we do not expect a substantial increase in FX liquidity due to the relatively weak FX reserves. However, barring any notable shocks, the reduced currency speculation and improved FPI inflows due to high naira yields may continue to strengthen the local currency in the near term”.

Corroborating, analysts at Afrinvest, said “Looking ahead, we expect rates across the FX segments of the market to follow a similar trend barring any negative shock”.