The naira has recorded a third straight gain at the official foreign exchange (FX) market to 1,574.20 per dollar since the Central Bank of Nigeria (CBN) commenced its weekly retail Dutch auction system on Wednesday.
On Friday, the naira gained 1.23 percent as the dollar was quoted at N1,574.20 compared to N1,593.62 quoted on Thursday at the Nigerian Autonomous Foreign Exchange Market, (NAFEM) according to the data from the FMDQ Securities Exchange Limited.
On Thursday the naira gained 0.18 percent as the dollar was closed at N1,593.62 from N1,596.52 closed on Wednesday.
The CBN conducted a Retail Dutch Auction (RDA), selling $876.3 million at a rate of N1,495 per $1 to 26 qualified banks. This strategic move is intended to alleviate the persistent demand pressure in the FX market and to enhance the process of price discovery. The CBN supplied approximately 75 percent of the $1.2 billion requested by 32 dealer banks, disqualifying bids from six banks due to submission errors.
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Among the disqualified bids, four were rejected for missing the bid submission deadline, while two were dismissed for incorrect submissions. The auction follows a sharp decline in FX turnover on FMDQ platform, which plummeted by 74.8 percent month-on-month to $63.4 million on Tuesday, 6 August. This turnover marked the second-lowest daily average for the year, slightly above the $69.2 million recorded on 17 January.
In the wake of the RDA, the naira appreciated by 0.23 percent, closing at N1,596.5 per dollar on Wednesday, 7 August. The naira further strengthened on the FMDQ, appreciating by 0.4 percent to reach an intra-day high of N1,628, and by 1.7 percent to hit an intra-trade low of N1,520. Additionally, there was a notable rise in FX turnover to $93.9 million. While this represents a 62.6 percent decline month-on-month, it also reflects a significant year-to-date increase of 510 percent.
The CBN reported that net foreign exchange inflows into Nigeria surged by 55 percent year-on-year to $25.4 billion in the first half of 2024. The gross reserve balance as of 7 August showed continued improvement, with the CBN’s data indicating a gross reserve balance of $36.9 billion, reflecting month-on-month and year-to-date increases of 6.0 percent and 11.7 percent, respectively. The rise in FX inflows is attributed to an increase in capital importation, which reached $6 billion in June 2024, along with higher diaspora remittances through formal channels.
According to a report by FBNQuest, these improvements in FX inflows suggest that the FX market may experience reduced volatility in the second half of 2024. While this development is poised to contribute to a more stable economic environment, the impact on import costs and inflation will depend on broader market conditions and subsequent policy responses.
“Given the improvements in FX inflows, the FX market may experience reduced volatility in H2’24. While this development could contribute to a more stable economic environment, the impact on import costs and inflation will depend on broader market conditions and policy responses, analysts at FBNQuest said.
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