Naira Falls After Action to Block Flight to Safety Risk

Naira Falls After Action to Block Flight to Safety Risk

For the fifth trading session, the naira declined against the US dollar amid tightening liquidity, driven by the Apex Bank’s efforts to prevent the local currency from gaining momentum.

The Apex Bank bought about 190 million in U.S. dollars in the recent past week, reversing its usual FX intervention to strengthen the local currency.

The FX purchase action reduced liquidity in the currency market, and the naira has been on a decline since last Wednesday. 

At the official window, the naira closed at N1355 per dollar, from N1349. Spot FX rate fluctuated between N1351 and N1362 during the intraday trading session, according to data published by the Central Bank.

FX liquidity remains largely driven by portfolio inflows rather than underlying export earnings, TrustBanc Financial Group Limited said in a commentary note.

The Apex Bank had previously signalled a preference for gradual naira recalibration, and a strong local currency could trigger capital flight.

Foreign portfolio investors in the Nigerian financial market face the risk of losing returns due to a stronger naira. The exchange rate conversion risk, including expected lower yields on the naira curve, could force early exit, Broadstreet analysts echo.

The forex market’s dollar supply structure showed that offshore inflows have continued to drive volume – in the absence of significant support from international oil companies.

Reliance on portfolio flows leaves FX stability sensitive to shifts in global sentiment, TrustBanc Financial Group Limited said in an update. 

Nigeria’s gross external reserves balance inched higher to $48.899 billion, from $48.769 billion, according to data published by the Central Bank.

In a report by Ebury, foreign exchange reserves have increased significantly since April 2024 and now cover nearly 8 months of imports, which analysts consider a very sound figure.

The improvement in the local FX market enabled the CBN to ‘stay out of the market on many days’ according to CBN Governor Olayemi.

The reduction in market intervention was made possible by improved liquidity and the subsequent narrowing of the spread between the official and black-market rates.

The bank expects a further increase in reserves to over $51 billion, driven by easing FX pressures, higher oil earnings, sovereign bond issuance, and increased diaspora remittance inflows LIRS Considers Use of AI by Residents to File Tax Returns