Naira hits two-month high of N1,382 on CBN’s FX reforms

Nigeria’s naira rose to a two-month high of N1,382.35 per dollar on Thursday at the official foreign exchange market helped by foreign exchange reforms by the Central Bank of Nigeria (CBN) that have helped boost investor confidence and dollar supply.

The last time the naira closed as strong as Thursday’s rate was on January 29, 2024 when the dollar was quoted at N1,348.63 at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to the data compiled from the FMDQ Securities Exchange.

After trading on Thursday, the naira strengthened by 7.98 percent compared to N1,492.61 quoted on Wednesday at the NAFEM.

At the parallel market however, the local currency depreciated by 1.98 percent as the dollar closed at N1,510 on the day as against N1,480 on Wednesday.

The Central Bank has introduced several policy reforms to improve liquidity in the FX markets in the short, medium, and long term.

Some of the reforms include unification of exchange rates window, liberalisation of FX market, clearing of FX backlog obligations to banks and airlines, introduction of Price Verification System (PVS), limits on banks Net Open Position, Lifting the daily cap of N2 billion on remunerable Standing Deposit Facility (SDF) and reform of the BDC segment.

Other measures include promotion of a willing buyer willing seller market; removal of all limits on margins for the International Money Transfer Operator (IMTO) remittances; introduction of a two-way quote system and the broad reforms in the Bureau De Change (BDC) segment of the market to restore stability, enhance transparency, boost supply, and promote price discovery in the Nigeria Autonomous Foreign Exchange Market.

Also, as part of efforts to rein in inflation and stabilise the naira, the Monetary Policy Committee (MPC) meeting, which held on February 26 and27, 2024, raised the MPR by 400 basis points to 22.75 from 18.75 per cent., adjusted the asymmetric corridor around the MPR to +100/-700 from +100/-300 basis points, raised the Cash Reserve Ratio from 32.5 percent to 45.0 per cent, and retain the Liquidity Ratio at 30 per cent.

Muhammad Sani Abdullahi, deputy governor, of the CBN, in charge of economic policy, said after the February 27 MPC, FX rates appreciated marginally by 0.33 percent on March 8, 2024 where it closed at N/US$1,625.23, compared with N/US$1,630.66 on Feb 27,2024.

According to him, exchange rate volatility moderated, and the spread narrowed to N/US$222.24 from N/US$662.59 post interventions, FX rates depreciated by 10.32 percent on March 8, 2024, where it closed at N/US$1,625.23, compared with N/US$1,473.26 at February 13, 2024.

Speaking during a presentation at the CITI- CEEMA Macro conference, Wednesday, March 20, 2024, London, he projected external reserves to increase marginally to US$35,014.28 million at the end of March 2024, from US$34.98 billion as of March 14, 2024.

External reserves to grow to N35.01bn month end – CBN deputy governor

Nigeria’s external reserves stood at US$34.98 billion as of March 14,2024, from US$33.74 billion in the previous month. The level of reserves could finance 7.0 months of import for goods and services, and 10.0 months of import for goods only based on import statistics for Q3 2023.

The CBN declared on Wednesday that it has successfully resolved all valid foreign exchange backlogs, as pledged by Governor Olayemi Cardoso, addressing inherited claims amounting to US$7 billion.

The Naira has maintained a steady appreciation, gaining 4.55 percent of its value against the dollar on increased dollar supply after the CBN cleared all FX forwards backlog.

The naira has gained 23.31 percent of value against the dollar to N1,4780 on Wednesday from the lowest rate of N1,825 on February 20, 2024, on the black market.

Muda Yusuf, CEO of the Promotion of Private Enterprise, said, it is too early to begin to celebrate anything. “While we recognise the improvement, we need to give it more time.”

Bala M. Bello, a member of the MPC, said in his personal statement that the depreciation in the naira exchange rate with significant pass-through effects further exacerbates the threat to price stability. He said keeping the exchange rate within desired levels is crucial for price stability.

“While the recent exchange rate policies implemented by the Central Bank are gradually showing some positive results, implementing complementary policy actions by the MPC and the fiscal authority that can increase foreign exchange inflows in the short to medium term, will lead to even better outcomes,” Bello said.