Exchange Rates Gap Falls to Single Digit after FX Inflow
The naira sustained uptrend for the second day at the official window has reduced the gap between autonomous and parallel market rates to a single digit. This happened as the apex bank continued to explore options to boost liquidity in the forex markets.
The Central Bank of Nigeria (CBN) on Wednesday sold Treasury bills at 21.45% to attract foreign portfolio investors in the country. Last week, the authority also sold OMO bills for the same reason.
Foreign investors purchased more than one billion dollars of Nigerian assets last month, with total portfolio flows of at least 2.3 billion dollars recorded thus far in 2024 compared to 3.9 billion dollars seen in total for last year, the CBN said in its latest report.
Speaking with MarketForces Africa, some currency analysts noted that exchange rates are moving near convergence level – negative because the official rate has worsened around the black market rate.
This is expected to have impacts on Nigerian companies’ production costs, which could not be as desirable. Producers who access foreign currency at an average of N1500- N1600 are expected to consider this in their product pricing.
Effectively, imported inflation will be transferred to Nigerians, increasing the consumer price index. At the official market, data from FMDQ revealed that the naira gained slightly in two-way markets trading on Thursday following a spike in gross external reserves balance to $34 billion
A slightly adequate supply of foreign currency to match the demand level strengthened the local currency against the US dollar, appreciating by 0.22% to close at N1,602.17 per greenback in the official market.
A similar pattern was noticed at the alternative market where the local currency freely traded against foreign currency. The parallel market saw a 0.13% strengthening, closing at N1,593 per US dollar. In its market update, Cowry Asset Management Limited told investors that this positive performance followed the conclusion of the recent Nigerian Treasury bills auction by the CBN.
The large auction sales on Wednesday aimed at boosting foreign investors’ interest in naira bonds, which pushed gross external reserves higher by 2.45% to $34.017 billion in days. In a note, Afrinvest revealed an expectation of marginal improvement in the naira across markets following efforts by the CBN to mop up excess system liquidity, ramp up OMO sales at attractive rates and eliminate FX market inefficiencies.
In the global commodity market, gold advanced to around $2,155 an ounce on Thursday, maintaining record highs. Anti-Homosexuality: Uganda Faces Difficulties Accessing External Funding –Fitch
Investors closely monitored economic data from the US and awaited further comments from US Fed chair Jerome Powell, as well as a key jobs report on Friday, to assess the timing of potential interest rate cuts. As the US Fed softened its hawkish pose, the market is now expecting a rate cut to happen in June 2024.
#Exchange Rates Gap Falls to Single Digit after FX Inflow
