The naira strengthened against the dollar on Wednesday on the parallel market as the demand for the greenback extended its decline.
Foreign exchange dealers were buying dollars at N880 while selling at N910, according to data by AbokiFX, an online platform that tracks the exchange rate on the parallel market.
This new level shows a remarkable gain when compared to the preceding day when dealers bought it at N932 and sold at N942.
The pressure on the naira has been cooling since the start of this week following the Central Bank of Nigeria’s (CBN) announcement of plans to boost dollar supply in coming weeks.
“The CBN’s pronouncements may provide a boost for the Naira in the short term but what is more important are those necessary reforms in governance and transparency that will shore up investors interest enough to sustain long term confidence in the Naira,” said Eben Joels, country leader for Stransact, RSM correspondent firm for Nigeria.
Folashodun Shonubi, acting CBN governor, had said the government was ready to take action to save the naira, insisting that the record naira freefall was not caused by market forces, rather by speculators.
Abiola Rasaq, former economist and head of investor relations at United Bank for Africa Plc, said: “While we still have some pent-up seasonal demand and sustainable autonomous supplies is still weak, there is some moderation in speculative demand and indeed some speculators are dumping back into the market on concern that the rate may have peaked and CBN initiatives may strengthen the naira from this level.
“Hence, the strength of the naira over the past two days reflects a cocktail of these variables. Hopefully, the CBN follows through with supportive initiatives, especially as we gradually move towards the end of the seasonal uptick in FX demand.”
According to him, based on historical statistics, the seasonal uptick in genuine FX demand would ease by the end of September.
“We should begin to look forward to an uptick in FX supplies that may help to tilt the demand/supply balance in favour of a stronger naira, all other things being equal, especially if the CBN reinstates confidence to the market to limit speculative pressures that may again alter market equilibrium,” he added.