Naira strengthens by 0.90% as dollar supply increase

Naira on Tuesday strengthened by 0.90 percent against the dollar as supply increased at the official foreign exchange (FX) market.

After trading on Tuesday, the local currency appreciated as the dollar was quoted at N1,603.38, stronger than N1,617.96 quoted on Monday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to the data released by the FMDQ Securities Exchange.

The intraday high recovered to N1,637 per dollar from a low of N1,650/$1 quoted on the spot. The intraday low also appreciated to N1,425.35, stronger than N1,511 closed on Monday.

Dollar supplied by willing sellers and willing buyers including banks rose by 27.09 percent to $122.18 million on Tuesday from $96.13 million recorded on Monday.

At the parallel market, also known as black market, naira also appreciated by 0.81 percent as the dollar was sold at an average rate of N1,605 on Tuesday. Some traders sold one dollar at between N1,600 and N1,612.

The naira appreciation was attributed to increased demand for the naira as analysts had predicted after the Central Bank of Nigeria hiked the Monetary Policy Rate by 400 basis points to 22.75 percent from 18.75 percent.

“Persistently high inflation, deficit monetisation, negative short-term real interest rates, low foreign reserves and a backlog of foreign-exchange orders will continue to sap confidence in the naira, despite a 45 percent devaluation in February,” a report by the Economist Intelligence Unit (EIU) said.

The report said traders will continue to be concerned that controls on the currency could be tightened at any point.

“Another step of devaluation is unlikely, and we expect that foreign borrowing will be used to rebuild foreign reserves and that the naira will stabilise towards the end of 2024. Accounting for further near-term losses, we expect an end-2024 rate of N1,770:US$1, compared with about N1,600:US$1 at end-February. However, this forecast is finely balanced.

“Any number of knocks to confidence could cause a sharper weakening. Alternatively, given the naira is increasingly appearing undervalued in real terms, the rate could end up stronger if the CBN tightens monetary policy more aggressively than we expect,” the report further said.

According to EIU, as the naira has undergone a sizable real-terms correction, the outlook for 2025 is relatively stable, with the currency forecast to end that year at N1,817:US$1. However, we maintain our view that a lax monetary-fiscal policy mix will undermine the longer-term value of the naira. In line with a slide in world oil prices from a cyclical peak, we forecast that the currency will end 2028 at N2,381:US$1 and that the spread with the parallel market will be 5-15 percent.