Naira pressure eases as external reserves sustain growth

The pressure on the naira/dollar exchange rate is beginning to ease as Nigeria’s external reserves have sustained growth in one month.

Data from the Central Bank of Nigeria (CBN) showed that the foreign currency reserves increased by 3.62 percent to $34.37 billion as of March 12, 2024 from $33.17 recorded at the beginning of February 2024.

Naira on Friday steadied at 1,605 per dollar, representing 0.62 percent gain over 1,615/$1 closed on Wednesday at the parallel market, popularly called the black market.

On Thursday, naira closed flat as the dollar was quoted at N1,608.98, stronger by 0.43 percent than N1,615.94 quoted on Wednesday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), data from the FMDQ Securities Exchange showed.

The intraday high appreciated to N1,625 per dollar on Thursday, stronger than N1,635 quoted on the spot on Wednesday. However, the intraday low fell to all-time low of N1,576 per dollar as against N1,500 quoted on the previous day.

Dollar supply by willing buyers and willing sellers declined marginally by 2.05 percent to $243.65 million on Thursday from $248.75 million recorded on Wednesday.

The foreign exchange (FX) recorded zero (N0.01) gap between the official and parallel market as the dollar was quoted at N1,615 across markets on Wednesday.

The recent accretion in external reserves was attributed to inflows from foreign capital and remittances.

The CBN recently announced a remarkable upswing in Diaspora remittances, soaring by 433 percent to reach $1.3 billion in February, compared to $300 million in January.

External reserves refer to the foreign currency and other assets held by a country’s Central Bank. These reserves are typically composed of foreign currencies, gold, and other international assets.

Increasing reserves can signal stability in the economy, as it suggests that the country has enough foreign currency to meet its international obligations and manage any potential economic shocks.

Rising reserves can support the value of the domestic currency, as the Central Bank can intervene in currency markets to prevent excessive fluctuations.