Naira gains as dollar supply surge after CBN’s intervention

Nigeria’s naira appreciated against the US currency following a significant increase in dollar supply by over 100 percent as CBN sold some amount to banks on Tuesday.

BusinessDay reports that the CBN sold up to $86 million in the spot FX market on Tuesday, its first sale of dollars in the market since September 2023.

Dollar supply from willing buyers and willing sellers surged by 202.98 percent to $271.50 million on Tuesday from $89.61 million recorded on Monday.

Consequently, the naira strengthened by 2.36 percent as the dollar was quoted at N1,499.07 on Tuesday compared to N1,534.39 quoted on Monday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to the data obtained from the FMDQ.

During the spot trading, the intraday high depreciated to N1,550 on Tuesday from N1,500 on Monday, while intraday low steadied at N1,000 per dollar.

At the parallel market, commonly called black market, naira was exchanged with the dollar at the rate of between N1,533/$1 and N1,590/$1 on Wednesday.

“The period from January 2023 to December 2023 witnessed a significant decline in the official exchange rate, plunging by 66 percent from 462 Naira per US dollar to 1041 Naira per US dollar. Simultaneously, the parallel market recorded a rate of N1,207 compared to N755 earlier in the year, reflecting a stark disparity between the official and parallel rates,” a report by Comercio Partners Research, stated.

According to the report, the persistent FX shortages, acting as a constraint on economic activity, have created a formidable challenge for exchange rate liberalization. Despite the commendable efforts by the CBN to address these shortages, the widening gap between official and parallel exchange rates signals a complex landscape.

The report said the recent policy shift, lifting the ban on 43 items and plans to clear unmet FX forwards, underscores a commitment to navigate these challenges. However, the resurfacing gap and the dwindling average daily FX turnover at the official window to USD95 million in September indicate the intricate nature of achieving a fully liberalized exchange rate.