Naira Reboots as Nigeria Tames Dark Economy Spurious FX Demand
The Nigerian naira has maintained firm tone across the foreign exchange markets as fear gripped currency speculators. The apex bank’s resolve to stabilize the naira has gained steam. Naira Suffers Big, CBN Goes Ballistic Against FX Whales
Nigeria’s FX reform has sufficiently reduced dark economy transactions that raised demand for US dollars early in the year. The Central Bank of Nigeria (CBN) is pumping the US dollar into banks, and Bureau de Change (BDCs) operators are stemming the tide against the local currency.
The local economy has seen a sharp increase in foreign exchange inflows, which has helped to boost the naira’s purchasing power. The market aggregate demand has been sufficiently met by the supply side, keeping US dollar dominant in check for weeks.
This is coming following closure on spurious demand experienced in the first quarter of the year. Binance peer to peer cryptocurrency exchange had negative run on the local currency. Since its stop operation, the naira has started regaining lost strenght in the currency markets.
Some Nigerians had taken large bets against the local currency with invincible FX demand via the alternative market to credit their Binance wallets. The CBN said large US dollar amount worth $26 billion passed through the dark economy without traces in less than a year.
Goldman Sachs has revised its 12-month forecast for the exchange rate, which it had set at N1200, to N1000. A strong naira bull’s expectation from Financial Derivative Company sets exchange rate target at N910.10 per US dollar.
The top bank continued to assert that the value of the naira is egregiously low. The Nigerian citizen had raised large bet against the local currency amidst growing misery index that ravage the nation following subsidy removal in June, 2023.
The market expects more US dollar inflows from foreign currency bonds sales in the second quarter as confirmed by the finance minister Wale Edun. This followed strong short term borrowing instruments sold at higher interest rates to attract foreign investors into the economy.
Nigeria’s gross external reserves has receded amidst sustained rally in the global commodities market. Oil prices surged due to geopolitical conflicts in the Middle East and expectation of direct attack on Israel by Iranian government.
Crude oil prices surpassed $90 while Nigerian grades trade at premium to the ICE Brent benchmark, though production volume has decline, resulting to negative impacts on fiscal performance. In an update, Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Nigeria’s crude oil production (including condensates) maintained its downtrend for the second consecutive month.
Output slumped by 6.6%to 1.44 million barrels per day (mbpd) in March from 1.54mbpd in February- the lowest level in 7 months. Analysts said the production decline highlights the headwinds in the Nigerian oil sector such as oil theft, vandalism and infrastructure decay amid the reduced investments in existing terminals with International Oil Companies (IOC) looking to exit Nigeria’s major assets.
Nigeria’s crude oil production declined significantly across the Akpo which declined by 28.2% in March, Bonga dropped 17.9% off its previous production level. Output from Usan declined by 16.0%, and there was 5.8% production slump in bonny terminals.
On the other hand, production volume increased across the Forcados, up by 1.9% in March, Escravos output grew by 10.4% and Qua Iboe surge 10.4% terminals. Nigeria’s FX reserve was unchanged at USD33.36 billion with the naira further appreciating by 9.5% to N1,142.38 at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
In an update, Cordros Capital Limited said barring any shock, the naira is expected to remain stable, supported by improved FX liquidity conditions due to sustained inflows from Foreign Portfolio Investments (FPIs) and reduced speculation activities.
