BusinessDay
Nigeria's leading finance and market intelligence news report.

Naira ends three trading days with marginal appreciation

The foreign exchange market observed a three day trading instead of five days due to the two-day holiday declared by the Federal Government on Tuesday and Wednesday.

Consequently, Nigeria’s currency ended the week with marginal appreciation against the dollar despite a drop in liquidity.

Naira gained 0.04 percent day-on-day to close the week at N411.50k per dollar on Friday compared to N411.67k/ the opening rate of Monday, at the Investors and Exporters (I&E) forex window, data compiled by BusinessDay from the FMDQ indicated.

On Monday before the holiday, Naira closed at N411.67k as against N410.38k closed on Friday at the same market.

Naira strengthened marginally by N0.04k against the dollar to N411.63k on Thursday from N411.67k on Monday at the official market.

Read also: Naira loses 0.31% against dollar at official market

The foreign exchange market liquidity dropped by 19.57percent as the market turnover declined to $135.28 million on Friday from $168.19 million recorded at the opening trading session on Monday.

Naira/dollar exchange rate closed flat at N380.69/USD at the Interbank Foreign Exchange market amid weekly injections of USD210 million by the Central Bank of Nigeria (CBN) into the forex market.

A breakdown of the dollar disbursement showed that USD100 million was allocated to Wholesale Secondary Market Intervention Sales (SMIS), USD55 million was allocated to Small and Medium Scale Enterprises and USD55 million was sold for invisibles.

Naira/USD exchange rate appreciated for most of the foreign exchange forward contracts: 1 month, 2 months, 3 months, 6 months and 12 months exchange rates declined by 0.08 percent, 0.09 percent, 0.13 percent, 0.20 percent and 0.16 percent to close at N413.01/USD, N414.66/USD, N416.55/USD, N423.20/USD and N436.29/USD respectively.

Meanwhile, the spot rate remained flat at N379.00/USD. “We expect Naira to weaken against the greenback at most FX Windows this week as CBN’s capacity to defend the Naira weakens amid plunging external reserves,” analysts at Cowry Asset Management Limited said.

Nigeria’s foreign reserves lost 3.3 percent to print at $33.2bn compared to $34.3bn as of the last Monetary Policy Committee (MPC) meeting.

“We believe this is a worrisome development and it points largely to sustained FX shortage in the system,” analysts at Afrinvest Securities Limited said.

The MPC will next week Monday & Tuesday (26th & 27th) meet to decide on monetary policy parameters for the rest of third (Q3) 2021.

“Based on our analysis of most key considerations for the MPC, we project retention of all policy parameters at current levels – MPR: 11.5 percent, Asymmetric Corridor around MPR: +100/-700bps, Cash Reserves Ratio (CRR) at 27.5 percent, and Liquidity ratio at 30.0 percent respectively,” analysts at Afrinvest said.

The CBN has disclosed plans to launch its digital currency by October this year. Rakiya Mohammed, CBN Director, IT Department said this at a Webinar, where she noted that the banking sector regulator had been conducting research towards the launch of digital currencies since 2017.

Central Bank’s digital currency is going to complement Nigeria’s coins and notes. The Central Bank digital currency will be as good as you having cash in your pocket.

A Central Bank Digital Currency would allow households and businesses to directly make electronic payments using money issued by the Bank of Nigeria.

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