Naira appreciates to N1354/$ despite low dollar supply at official market

The naira, on Monday, appreciated against the dollar, at the official foreign exchange (FX) market, despite low dollar liquidity in the market.

After trading on Monday, the naira strengthened by 3.41 percent as the dollar was quoted at N1,354.21 as against N1,400.40 quoted on Friday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to the data released by the FMDQ Securities Limited.

The dollar supplied by willing buyers and willing sellers declined significantly by 57.98 percent to print at $84.83 million on Monday from $201.88 million recorded on Friday.

According to the summary of the FX auction as released by the FMDQ, the intraday high closed at N1,441 on Monday, weaker than N1,435 quoted on Friday. On the other hand, the intraday low strengthened to N1,285 on Monday compared to N1,300.40 closed on Friday on the spot at the NAFEM.

The naira weakened against the dollar at the parallel market also known as the black market, losing 5.49 percent to close at N1,430/$ from N1,350/$ quoted on Friday.

The naira’s depreciation quickened due to increased demand for the greenback by end users who want to travel for business, tourism, health or education.

In April 2024, the naira depreciated by 5.9 per cent against the dollar month-on-month (m/m) in April, following increased demand amid low liquidity at the parallel market. While the local currency weakened by 2.96 percent at the parallel market in April.

Shuaib Idris, economic analyst and CEO of TimeLine Consults, said that the naira’s rapid appreciation last month was not sustainable because it didn’t stem from economic improvements.

“Recent developments in the foreign exchange market in Nigeria are not surprising. The massive appreciation of the naira within a fairly short period of time could not last because it was not an appreciation due to improvements in any economic situation or fundamentals,”

However, analysts at Afrinvest Securities expect the naira to trade within the current level. Looking ahead, “we expect the Naira to be exchanged within the current band, barring any shocks,” analysts at Afrinvest Securities Limited, said.

Bamidele Amoo, member of the Monetary Policy Committee (MPC), noted that the foreign exchange market was positively impacted by the last hike in the Monetary Policy Rate (MPR) and other rates. Consequently, further hike in MPR will still help to create the right environment to moderate the volatility levels of naira exchange rate.

As part of its tightening measures to rein in inflation, the CBN, in one month raised its benchmark interest rate, known as the MPR, by 600 basis points to 24.75 percent in March 2024 from 18.75 percent in July 2023.