• Thursday, May 23, 2024
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BusinessDay

Naira steadies at 1,350 as CBN targets FX inflow for liquidity boost

Naira extends depreciation to 1,515/$ despite marginal growth in external reserves

The naira on Tuesday steadied at 1,350 per US dollar on the parallel market, popularly called black market.

On Monday morning, the naira opened the foreign exchange (FX) market at the same rate before closing at N1,360/$1 on the same day at the black market.

At the official market known as the Nigerian Autonomous Foreign Exchange Market (NAFEM), the naira on Monday fell to 1,419.11 per dollar, the lowest since March 13, 2024 at the official FX market, following slowing inflows occasioned by the withdrawal of funds by Foreign Portfolio Investors (FPIs).

The intraday high closed at N1,451 per dollar on Monday, weaker than N1,410 closed on Friday. The intraday low also depreciated marginally to N1,060 on Monday as against N1,051/$1 closed on Friday at NAFEM, data from the FMDQ Securities Exchange indicated.

Dollars supplied by willing buyers and willing sellers declined by 52.16 percent to $147.83 million on Monday from $309.01 million recorded on Friday.

On day to day trading, the naira weakened by 5.63 percent as the dollar was quoted at N1,419.11 on Monday as against N1,339.23 quoted on Friday at NAFEM.

During the recent Monetary Policy Committee (MPC) meeting, Olayemi Cardoso,Governor of the Central Bank of Nigeria (CBN), emphasized the critical need to attract inflows to maintain liquidity in the foreign exchange market and stabilize the exchange rate.

In his statement, Governor Cardoso highlighted the importance of addressing inflationary pressures through exchange rate management to safeguard both price stability and long-term economic growth.

“Failure to tame inflationary pressure using the exchange rate channel may jeopardize not only price stability but also long-term growth,” stated Governor Cardoso.

Addressing concerns raised at the March 2024 MPC meeting, Governor Cardoso emphasized the need to reduce negative real interest rates to attract capital flows and enhance liquidity in the FX market. He stressed the significance of attracting capital flows through foreign portfolio investments and moderating exchange rate pressures to mitigate the impact of exchange rate pass-through on inflation, particularly in Nigeria’s import-dependent economy.

Commenting on the monetary situation, Mustapha Akinkunmi highlighted a decline in Nigeria’s reserve money by 24.91 percent to approximately N22.2 trillion by the end of February 2024. Despite this, broad money (M3) supply increased to N93.7 trillion, contributing to inflationary pressures. Nigeria’s external reserves also decreased to US$32.87 billion as of March 19, 2024, from US$33.68 billion in February 2024.

Although current reserves cover imports for 5.7 months of goods only and 4.5 months of goods and services, the country’s ability to repay short-term debts using reserves exceeded the threshold at 104.0 percent, he said.

According to him, the reserves-to-broad money ratio of 33.1 percent surpassed the 20.0 percent threshold, indicating Nigeria’s capacity to manage capital flows effectively.

Governor Cardoso’s emphasis on attracting inflows and managing exchange rate pressures underscores the CBN’s commitment to maintaining stability in the FX market and combating inflationary challenges in Nigeria’s economy.