The foreign exchange (FX) market recorded a significant increase in dollar liquidity, which led to a stronger naira at the official market on Thursday.
The volume of dollar transactions, which reflects the daily FX market turnover rose by 155.03 percent to $176.53 million on Thursday from $69.22 million recorded on Wednesday.
After trading on Thursday, naira appreciated by 1.23 percent as the dollar was quoted at N902.08 compared to N913.23 quoted on Wednesday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), data from the FMDQ indicated.
During the intraday trading, one dollar was quoted at N1,261 as the highest bid rate on the spot and N760 per dollar as the lower rate.
Economic analysts from FSDH Research have indicated that the foreign exchange market is likely to face sustained pressure in the upcoming year.
This pressure is attributed to the increasing demand for imported goods and services, fueled by an overall GDP growth that falls short of meeting domestic needs.
“The FX market will continue to be under pressure, driven by rising demand for imported goods and services – overall GDP growth is not high enough to meet domestic needs,” analysts at FSDH research said.
Despite additional FX inflows expected from crude oil sales and various sources, experts foresee challenges in meeting the rising demand for foreign exchange. The anticipated improvement in foreign portfolio investment (FPI) inflow, driven by attractive interest rates, is not expected to bring the economy back to pre-COVID FPI levels.
In their projections, FSDH Research predicts an average exchange rate of N925 per US dollar in the official market for the year 2024. This forecast reflects the ongoing struggle to balance foreign exchange demand and supply within the country’s economic landscape.
In a recent note, Razia Khan, managing director and Chief Economist for Africa and the Middle East Global Research at Standard Chartered Bank, expressed optimism regarding Nigeria’s FX reserves. Khan highlighted the expectation that donor support and external borrowing would play a crucial role in bolstering the country’s FX reserves.
“As we anticipate donor support and external borrowing to boost FX reserves,” Khan stated in a note, emphasizing the potential positive impact on Nigeria’s economic outlook.
Khan further revealed that the World Bank is set to contribute significantly to Nigeria’s economic resilience. An allocation of $800 million in ‘palliative funding’ from the World Bank is earmarked to cushion the economic impact of subsidy removal, specifically targeting Nigeria’s most vulnerable populations.
Moreover, the World Bank is poised to approve approximately $1.5 billion in rapidly disbursing budget support under the 2023 budget, with a similar amount expected for the 2024 fiscal year. This injection of funds aims to provide substantial financial support, aiding the country in addressing economic challenges and promoting stability.
Nigeria awaits these crucial financial inflows as part of its strategy to navigate economic complexities and ensure the well-being of its citizens, particularly in light of subsidy adjustments
