The Nigerian foreign exchange (FX) market on Monday witnessed an appreciation in the value of the naira for the second straight trading day amid crawling external reserves.
Nigeria’s external reserves rose marginally by 0.69 percent to $32.642 billion as of May 16, 2024, from $32.418 billion on May 9, 2024 data from the CBN indicated.
The increase in the foreign currency reserves is attributed to an increase in oil production and the inflows from foreign portfolio investors.
“With the current yield in fixed income, FPIs are attracted to Nigeria due to the good yields. Also, there has been an improvement in oil production and what this means is that it will lead to an increase in foreign reserves, said Ayodele Akinwunmi, relationship manager of corporate banking at FSDH Merchant Bank.
Bismarck Rewane, managing director/chief executive officer of Financial Derivatives Company Limited said, the infusion of US$ 10 billion in diaspora funds into the Nigerian economy Can bolster the country’s foreign exchange reserves, which can stabilize the currency and contribute to overall macroeconomic stability.
After trading on Monday, the naira gained 1.93 percent as the dollar was quoted at the rate of N1,468.99, stronger than N1,497.33 quoted on Friday at the official FX market, known as Nigerian Autonomous Foreign Exchange Market (NAFEM), data from the FMDQ Securities Exchange Limited, showed.
The intraday closed at N1,550 per dollar on Monday, slightly stronger than N1,555 closed on Friday. Also, the intraday low appreciated to N1,400 on the same day, as against N1,415 quoted on Friday.
The foreign exchange market turnover increased by 93.31 percent to $161.41 million on Monday from $83.50 million recorded on Friday.
At the parallel market, popularly called the black market, the naira also appreciated to N1,470 per dollar on Monday compared to N1,521.66 closed on Friday.
On a weekly basis, the naira fell by 2.07 percent, week-on-week to close to N1,497.33 per dollar on Friday compared to N1,466.31 closed on the previous week, at the NAFEM.
“We anticipate extended pressure on the Naira as FX supply-demand mismatch persists,” analysts at Afrinvest Securities Limited said in a report.
In five trading days, the naira weakened by 1.28 percent as the dollar was quoted at N1,497.33 on Friday as against N1,478.11 quoted on Monday, according to the data compiled from the FMDQ.
On a daily trading basis, the local currency appreciated by 2.45 percent from N1,533.99 per dollar exchanged on Thursday at NAFEM.
Dollar supplied by willing sellers and willing buyers declined by 63 percent, week-on-week to a total of $991.90 million last week from $608.50 million recorded the previous week.
The Afrinvest report noted that the price of Brent benchmark crude rose by 1.4 percent w/w, to close at $83.98/bbl, after U.S. consumer inflation readings came in softer than expected – boosting hopes for firmer demand as the travel-dense summer period approaches.
For analysts at Comercio Partners, the naira’s trajectory will likely be influenced by a range of factors. The CBN’s potential policy rate adjustments could attract foreign investors back to Nigeria’s fixed-income market, supporting the currency.
They said sustained appreciation will require broader economic diversification efforts and continued reforms to address FX market speculation and improve regulatory frameworks.
“Detailed analysis of sector-specific impacts, such as the manufacturing and export sectors, will provide deeper insights into how currency fluctuations affect key industries. Monitoring trends in foreign investment, remittances, and FX reserves utilization will also be crucial in understanding Nigeria’s economic resilience and its ability to navigate global economic challenges,” the analysts said.
While supply remains an issue, in a bid to increase the overall effectiveness of remittance transactions in the country, the CBN has licensed 14 new international money transfer operators (IMTOs), which are set to further diversify the foreign exchange market by encouraging greater competition. This move is in line with CBN’s strategy to increase foreign currency remittances through formal channels, analysts at Coronation Research said.
Rewane said official remittance inflows into Nigeria amounted to about 5 percent of GDP in the past 20 years. Since 2016, consecutively, official remittances have exceeded Nigeria’s oil revenue. The actual amount of remittances could be higher since most transactions are unrecorded or take place through unofficial channels.
In his May 2024 presentation at Lagos Business School, Rewane said, that in 2022, migrants’ remittances to Nigeria equalled US$20.13 billion, representing about 4.3 percent of GDP. This also represents 3 percent year-on-year growth from the US$19.48 billion receipt in 2021.
The 2022 figure translates to 51 percent of the 2022 FGN budget, six times the foreign direct investment (FDI) flows in the same period. Nigeria’s remittance inflows were also five times larger than the net official development assistance (foreign aid) received in 2022 (US$4.4 billion.)
