Naira stabilises as EFEMS, Eurobond, diaspora dollars flow in

The naira has maintained relative stability in the foreign exchange market, bolstered by inflows from the Nigerian diaspora returning home for Christmas, proceeds from a recent Eurobond issuance, and enhanced market transparency introduced by the Central Bank of Nigeria (CBN).

These factors have contributed to improved liquidity and confidence in the foreign exchange market, with the naira trading within a range of N1,660 to N1,525 per dollar in the official market and remaining stable at around N1,660 in the parallel market.

The naira, on Thursday, appreciated against the dollar, gaining N5 to close at N1,540/$ compared to N1,545/$ closed seen on Wednesday at the Nigerian Foreign Exchange Market (NFEM), data from the CBN indicated. The local currency steadied at N1,660 per dollar in the black market.

Authorised currency dealers quoted the dollar at a highest rate of N1,550 on Thursday, stronger than N1,565 seen on Wednesday, while the market recorded a steady lowest rate of N1,531 per dollar at NFEM.

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The stability in the naira has been largely attributed to the CBN’s implementation of the Electronic Foreign Exchange Matching System (EFEMS), which has improved transparency and efficiency in FX trading.

Charlie Robertson, head of macro strategy at FIM Partners UK Ltd, noted that the naira’s performance may also be influenced by proceeds from Nigeria’s recent Eurobond issuance and the seasonal increase in dollar inflows from the diaspora.

Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), highlighted the transparency brought about by the EFEMS platform. He explained that clearer information on supply and demand has reduced information asymmetry and made demand more realistic. Yusuf also emphasised the importance of CBN interventions and rising external reserves, which have bolstered investor confidence and mitigated panic. According to CBN data, external reserves stood at $40.73 billion as of December 17, 2024.

“Seasonal factors have also played a significant role. Many diaspora Nigerians are sending money home or returning with dollars for the holidays, boosting liquidity in both the official and parallel markets.”

Yusuf added that other contributors to the naira’s stability include the Eurobond issuance and domestic dollar bond offerings, which have collectively supported the FX market.

Ayodele Akinwunmi, senior relationship manager at FSDH Merchant Bank, attributed the increased supply and transparency to the CBN’s recent FX policies. He noted that customers can now access FX to meet obligations, with current pricing reflecting market realities.

Akinwunmi also pointed out that seasonal trends, such as reduced dollar demand during the Christmas holidays, have supported the naira’s performance.

Aminu Gwadabe, president of the Association of Bureaux De Change of Nigeria (ABCON), observed that the naira’s appreciation depends on CBN interventions in the EFEMS market. He called for increased liquidity in the retail exchange market through Bureaux De Change (BDCs) to stabilise rates further. Gwadabe suggested leveraging BDCs as effective tools for managing volatility and achieving budgetary exchange rate targets.

The CBN’s policies have been instrumental in fostering stability. On November 26, 2024, the CBN directed all banks operating in the interbank FX market to adopt the Bloomberg BMatch system for trading, which became operational on December 2, 2024. Additionally, the EFEMS guidelines, including a minimum tradable amount of $100,000 and incremental clip sizes of $50,000, were designed to enhance transparency and efficiency.

Proceeds from Nigeria’s recent Eurobond issuance have also played a significant role. Earlier this month, Nigeria successfully returned to the international bond market after a two-year hiatus, with the $1.7 billion issuance subscribed four times more than the intended offer. The transaction, which peaked at over $9.0 billion in orders, demonstrated strong investor confidence across geographies and classes, including fund managers, insurance and pension funds, hedge funds, and banks.

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Olawale Edun, Nigeria’s minister of finance, highlighted the Eurobond’s success as a sign of growing confidence in the government’s economic policies. He emphasised that these efforts aim to stabilise the economy and set it on a path of sustainable and inclusive growth.

Similarly, Olayemi Cardoso, governor of the CBN, noted that the outcome reflects Nigeria’s improved liquidity position and growing access to international capital markets.

Cardoso reiterated that the electronic FX matching system would continue to address distortions in the market, improve price discovery, and enhance the CBN’s intervention capabilities, paving the way for a more transparent and stable foreign exchange system.