Naira remains strong as dollar supply rises by 49.47%

The Naira has maintained its level of appreciation against the United States currency across foreign exchange (FX) markets, as dollar supply at the official market increased on Wednesday.

The local currency strengthened by 1.25 percent as the dollar was quoted at N1,262.85 on Wednesday, stronger than N1,278.58 quoted on Tuesday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to the data released by FMDQ Securities Exchange.

Dollar supply by willing buyers and willing sellers, including commercial banks rose by 49.47 percent to $166.18 million on Wednesday from $111.18 million on Tuesday.

The intraday high closed at N1,296 per dollar on Wednesday, stronger than N1,312$1 closed on Tuesday. The intraday low also appreciated to N1,210/$1 on the same day compared to N1,250 quoted on Tuesday.

The Naira on Wednesday strengthened to N1,250 per dollar, gaining 0.8 percent (N10) over N1,260 closed on Tuesday at the parallel market, popularly called black market.

When compared to the level on February 20, 2024, naira has gained 46 percent of its value against the dollar from the lowest of N1,825/$ on the parallel market.

The appreciation of the local currency was attributed to the several foreign exchange (FX) policies implemented by the Central Bank of Nigeria (CBN), to boost dollar supply and enhance transparency in the FX market.

On June 14, 2023, the CBN abolished market segmentation and collapsed all into the Investors & Exporters window (Now, Nigerian Autonomous Foreign Exchange); re-introduced the Willing Buyer, Willing Seller framework, among other reforms.

CBN in August 2023, resumed Forex sales to BDCs but limited the buying and selling spread by BDCs to +/-2.5 percent of the weighted average of transactions executed the previous day on the I&E window.

In January 2024, the apex bank set the Net Open Position (NOP) of banks in Nigeria at a limit of 20 percent short or Zero percent long holding of foreign currency assets and liabilities.

Also, in January 2024, the CBN directed the International Money Transfer Operators (IMTOs) to quote an exchange rate for Naira payout to beneficiaries based on the prevailing market price.

The banking and finance sector regulator, in February 2024, discontinued any form of cap on the spread on interbank Forex transactions and restrictions on the sales of interbank proceeds. In the same month, the CBN limited the payout of Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) to electronic channels only.

According to FSDH Research, the implementation of these measures has eased the volatility of the Naira in the FX markets.

In March 2024, the volatility of the Naira reduced following several reforms by the CBN to improve transparency and inflows into the FX market. On March 28, the NAFEM closing rate was N1309.4, a significant appreciation from a peak of N1,650 on February 26, 2024.

“We believe that the recent FX reforms coupled with high interest rates and improved oil production will bring stability to the FX market,” analysts at FSDH said.