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Following the Central Bank of Nigeria’s (CBN) announcement that it had resolved all legitimate foreign exchange backlog, the value of the naira experienced an upward trend, appreciating by 12 percent by the conclusion of last week’s trading activities.
The naira, which had closed the previous week at N1,502 to the dollar, witnessed a surge in value, closing last Friday at N1,431.49 to the dollar.
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Besides the liquidity infusion resulting from the clearance of the backlog, inflows into the Nigeria Autonomous Foreign Exchange Market (NAFEM) also contributed to enhanced liquidity.
Last week, the CBN declared that it had successfully addressed the verified foreign exchange backlog through the latest disbursement of $1.5 billion. Additionally, the apex bank intervened in the market three times within the week, totaling sales of $195 million.
Inflow at the official market surged by 47.2 percent week-on-week to $1.5 billion from the previous week’s $1 billion inflow. Similarly, the naira’s value at the parallel market appreciated by 6.7 percent to trade at N1,495 to the dollar.
Transactions at the NAFEM occurred within the band of N1,300 – N1,640 to the dollar.
In the Forwards market, naira rates exhibited appreciation across various contracts, with the 1-month rate increasing by 9.6 percent to N1,460.81/USD, the 3-month rate rising by 9.4 percent to N1,500.26, the 6-month rate climbing by 8.4 percent to N1,562.99, and the 1-year rate advancing by 6.5 percent to N1,705.82 to the dollar.
Analysts observe that the CBN’s heightened intervention in the foreign exchange market, including the settlement of the final portion of forex backlogs and the commencement of retail dollar sales to banks within the N1,300 – N1,400 to the dollar range, will bolster confidence in the FX market and stabilize the naira.
While the CBN is anticipated to sustain its forex intervention in the short term, analysts at Cordros Research do not anticipate a significant increase in forex liquidity due to relatively weak forex reserves. However, barring any notable shocks, reduced currency speculation and improved Foreign Portfolio Investment (FPI) inflows stemming from high naira yields may continue to fortify the local currency in the near term.
Nigeria’s foreign exchange reserves halted their five-week accretion trend last week, with gross reserves decreasing by $96.41 million week-on-week to $34.32 billion as of March 20, 2024.
