Naira Makes Uptrend, Gains Across FX Markets
The naira appreciated by 2.4% to N1,278.58 per US dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM). Last month, the exchange rate gained about 22 percent month on month due to improved foreign currency liquidity.
Exchange rate at the parallel market settled at #1250 after the apex bank sold an additional $10,000 to Bureau de Change, with a 1.5% limit placed on bid and sell ratio.
Exchange rate turning the corner over the past weeks as demand undercut foreign currency supplied at Nigeria autonomous FX market.
Analysts attributed the gaining streaks to FX markets reform amidst projection that the local currency will recover from excessive weight loss.
The authority ability to tame spurious US dollar demand in the black market remains the game changer, according to Analysts.
FX speculation and round tripping including Binance cryptocurrency exchange peer to peer shadow economy aided riotous decline in the value of the local currency.
The apex Bank claimed that Binance became a conduit where some Nigerians converted local currency to US dollar for trades that failed to pass through the financial system.
The CBN estimated that more than $26 billion was transmitted via the peer to peer platform in one year, causing demand for the US dollar to rise faster amidst excess cash in the system.
To reduce cash level in the economy, the apex Bank embarked on aggressive mopping up with large ticket treasury and open market operations bills sales that attracted both local and foreign investors.
The increase short term borrowing instruments sales come with higher interest rates offered to market participants who parted with naira for papers.
But despite all the efforts to achieve market clearing rates, the naira has been moving range bound. Traded above #1600 is against market expectations, analysts said in chats with MarketForces Africa.
Since naira was floated, the CBN market intervention has reduced significantly…far below pre-pandemic support level to boost FX liquidity at the official window.
For exchange rate to recoup losses sustained due to spurious demand, analysts said there is need to ensure there is enough FX markets supply. Kebbi Govt. Approves N3.34bn Subsidy for 3,344 Prospective Pilgrims
So far, the CBN injections into banks and parallel markets have improved the outlook of the naira strongly.
“Naira faced significant pressure because demand and supply side are not balanced. If there’s more US dollars at the official window than what is need to pay offshore bills, exchange rate will bounce back”, analysts said.
