Naira Gains, Exchange Rates Gap Increases to N106
The naira exchange rate gained against the US dollar to settle at N1534.05 in the foreign exchange (FX) market on the back of Central Bank (CBN) intervention. Spot rate was quoted at N1,534.05 per US dollar at the Nigerian Foreign Exchange Market (NFEM) despite the CBN intervention at the official window.
The apex bank sold about US$37.10 million to authorized dealers to keep the supply side strong amidst surging demand for foreign payments. Recently, the CBN has continued to staying behind the naira to achieve exchange rate stability, a latest trend that comes as surprise, reversing the old narrative in the currency market.
Spot rate computed based on FMDQ Exchange FX closing rate Methodology using data from Bloomberg BMatch was N1534.05 per US dollar. FX transactions consummated fluctuated between N1530.50 and N1539 in the currency market.
Meanwhile, in the parallel market, exchange rate cleared at N1,640 per US dollar, traded flattish against the greenback. The gap between official and parallel market rates extended to N106 on each dollar.
The gap raise currency speculative risks, and some analysts said the development which favoured participants in the official market could reverse trend. The monetary authority has been primarily supporting foreign currency liquidity, as foreign portfolio investors (FPI) inflows have remained tepid.
The slowdown in inflows was partly due to existing geopolitical risks including the Middle East regional conflicts, Russia-Ukraine war and the expectation of rising global trade protectionism, Cordros Capital Limited said in a note. Analysts believe FX liquidity will be suboptimal to keep the naira stable in the near term, just as FX demand increases.
According to the Domestic and Foreign Portfolio Report of the Nigerian Exchange (NGX), total transactions in the local bourse declined by 12.0% m/m to N442.34 billion in November from N502.73 billion in October.
Analysts highlight that the lower participation in the local bourse may be primarily attributed to investors’ preference for debt securities due to attractive yields in the fixed-income market.
Specifically, domestic inflows dipped by 11.8% month on month to N401.40 billion from N455.27 billion in October due to a decline in collections from institutional investors amid about 15% increases from retail investors. On the other hand, foreign inflows dropped after a month of expansion, declining by 13.7% to N40.94 billion in November from N47.46 billion in October, 2024.
Analysts at Cordros Capital Limited think the ongoing geopolitical tensions are likely to constrain FPI participation in the Nigerian stock exchange market. #Naira Gains, Exchange Rates Gap Increases to N106 2025 Budget: N13trn Deficit to be Financed Through Borrowing – Edun
