Naira Falls as CBN Direct Interventions Ease, FX Supply Rises
The naira fell against the US dollar to N1,535 at the Nigerian foreign exchange market (NFEM) as Central Bank direct interventions eased. FX update from the CBN platform showed that the naira depreciated to N1,535.23 per dollar on Tuesday from the official spot rate of N1,532.54 the previous day.
The local currency regained strength against the dollar amidst reforms that boosted foreign investors’ confidence and sentiment.
Elevated yields on government borrowing instruments have been a major driver of hot money into the economy as the authority has mortgaged significant hydrocarbon revenue for oil-backed loans.
The recent official exchange rate trends showed demand is fast rising relative to the supply of US dollars sufficient to keep the naira strong. The shift has also brought back the CBN FX intervention, but at a lower scale compared with the authority’s aggressive stance in the first half of the year.
The naira opened the week at N1, 532.34 and has fallen for two consecutive trading sessions, albeit marginally. The exchange rate adjusted despite a rebound in foreign exchange supply, particularly from exporters and non-bank corporates, alongside sustained inflows from foreign portfolio investors (FPIs).
The currency traded as strong as N1,518.89 per dollar during the week, indicating temporary boosts in liquidity mid-week, according to analysts reports. Foreign exchange inflows during the week rose significantly to US$1.31 billion, up from US$750 million in the prior week, according to Coronation Merchant Bank research unit.
The firm said in a note that foreign portfolio investors accounted for 62.50% of the inflows, marking the ninth consecutive week of their dominance in market participation and underscoring continued interest in Nigerian fixed income instruments.
Non-bank corporates contributed 14.08%, while exporters accounted for 12.76%. The CBN contributed 9.86%, while other corporates and individuals made marginal contributions of 0.33% and 0.34% respectively.
Nigeria’s gross external reserves edged up, rising above $38 billion mark at the beginning of the week, spurred by inflows across foreign sources. This build-up likely reflects a combination of improved oil-related receipts, multilateral inflows, and a moderation in CBN’s direct interventions in the FX market, analysts said.
In the near term, the naira is expected to trade within a narrow band as improved FX supply continues to support stability across both the official and parallel markets. Coronation stated that sustained participation from FPIs, particularly in the fixed income space, alongside steady export proceeds, could help bolster market liquidity.
However, the research unit of the merchant lender said potential risks remain on the horizon, including oil price volatility, external debt service obligations, and shifts in global interest rates, all of which could influence reserve dynamics and exchange rate pressures going forward. #Naira Falls as CBN Direct Interventions Ease, FX Supply Rises Africa Finance Corp. Secures $255m Syndicated Loan from UAE Banks
