The naira, which fell to as low as N890 per dollar at the parallel market last week, pared its losses on Monday as it appreciated by 5.94 percent to N840/$.
The naira appreciation was linked to increased supply of dollars in the market. “There are enough dollars in the market now. Naira may likely continue to appreciate this week,” a trader said on Monday.
On Monday morning, the naira traded at between N850 and N870 per dollar but at the close of business, it strengthened to between N840 and N860/$ in Lagos street markets, popularly called black market.
This represents 1.16 percent (N10) gain between morning and evening on Monday. In Abuja, the naira gained 8.54 percent as the market closed at N820 compared to N890/$ on Friday.
Also in Kano, the local currency strengthened by 4.76 percent to N840 per dollar on Monday as against N880/$ on Friday.
Read also: Naira falls further on increased dollar demand
The currency appreciation in the parallel market rate will increase exchange rate convergence, reduce parallel market premium and rent seeking activities and improve market efficiency and diaspora inflows, according to Bismarck Rewane, managing director/chief executive officer of Financial Derivatives Company Limited.
Naira had been depreciating in recent days following increased demand for dollars amid supply shortage. “Despite several initiatives by the Central Bank of Nigeria (CBN) such as the RT200 programme, the increase in interest rates, clamping down on Bureau De Change (BDCs), and FX repatriation policies, the Naira vis-à-vis the Dollar keeps depreciating,” analysts at FSDH said in a new report.
The report said the recent policy on issuance of new naira notes has also intensified the currency’s depreciation. While the underlying problem with Nigeria’s exchange rate is limited FX inflows, “we believe that policies by the apex are important tools that influence the movement of the naira.”
Nigeria’s central bank last week announced plans to introduce new banknotes to replace the current N200, N500 and N1,000 notes with effect from December 15, 2022.
Rewane said the naira will test the 900/$ benchmark in early November.
Nigeria’s external reserves declined by 7.75 percent year-to-date to $37.36 billion as of November 3, 2022 from $40.40 billion at the beginning of the year, data from the CBN show.
One of the reasons for the external reserves decline, according to a report by FBNQuest, is the exit of foreign portfolio investors from Nigeria. Portfolio investments account for the majority (61 percent) of total capital imports into the country.
At the end of October, average Brent crude oil price rose 4.1 percent to $93.40 per barrel after recording consecutive losses in the last three months, according to a report by Afrinvest Securities Limited.
This growth was spurred by OPEC+ decision to cut oil production despite fuel markets remaining tight, especially with inventories in major economies at low levels. Similarly, oil prices maintained the trajectory in the first week of November following lingering supply risks and dollar softening. However, recession fears due to rising interest rates and China’s COVID outbreaks kept prices in check.
Nigeria possesses 36 percent of stranded airline funds globally, and foreign airlines’ trapped funds now over $500mn, according to Rewane.
He noted that the CBN planned to release $264 million two months ago and may release another $150 million. “As operations continue, repatriation proceeds mount,” he said, adding that the CBN said airlines’ were not its priority. “Forex backlog to airlines will mount as the festive season approaches.”
The disparity between the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) and parallel market rate further widened due to speculative activities, following CBN’s announcement of plans to redesign the country’s notes, Afrinvest said in a report.
As such, the NAFEX rate at the Investors’ & Exporters’ (I&E) Window depreciated 75kobo week-on-week to N445.50/$1.00 from N444.75/$1.00 the prior week. At the parallel market, rates closed at N895.00/ $1.00, depreciating N130.00 w/w. Activity level in the I&E Window inched higher by 5.3 percent w/w to $389.0m from $369.3m in the previous week.