Naira Strengthens on Surprise Action
The Nigerian naira staged a fresh recovery across the foreign exchange markets as the monetary authority launched plans to uncaged the dollarized economy. The apex bank began FX backlog payment to deposit money banks estimated at $7 billion.
Analysts laud the development which supported increased US dollar liquidity in the official market. Data from FMDQ FX OTC showed that the exchange rate recovered steeply this week.
MarketForces Africa reported that the spot rate had crossed N900 in recent weak as a result of a spike in forex demand by importers, and manufacturers. The exchange rate had also crossed N1,300 in the parallel market before it started recovering.
At the close of the trading session on Friday, the Nigerian Naira appreciated by about 2% against the US Dollar in the Nigerian Autonomous Foreign Exchange market (NAFEM), closing at a rate of N776.14.
In the parallel market, the naira clawed back losses from spurious demand amidst speculative activities in the open market. The exchange rate fell slightly below N1000 at the open market from N1,150 as demand slackened following news apex bank has bolstered FX supply to local banks.
Elsewhere, the nation’s gross external reserves surge further, marking the fourth consecutive week of accretion. This comes in addition to $1.5 billion in loans from the World Bank announced by Finance Minister Wale Edun and a $3 billion loan for oil swap deal with the African Import-Export Bank – which appeared to have stalled.
Data from the Central Bank of Nigeria (CBN) website revealed that the nation’s gross reserve level advanced by USD60.15 million in the week to close at USD33.40 billion. Analysts said the amount is sufficient to cover 7 months of imports.
However, external claims like forwards swaps and other deals entered into by the apex bank on behalf of the Nigerian government have discounted its weight as a buffer that supports strong FX market intervention.
From the beginning of the week to Thursday, total turnover at the market declined by 28.6% to USD443.09 million, as trades were consummated within the N475.00 – N1101.00 band.
In the Forwards market, the naira rates appreciated by 6% for one one-month contract priced at N787.21, 3-month contract gained 6.2% to N801.43, 6-month contract appreciated by 6.5% to N823.49. At the other end, forward contracts for 1-year rallied by 6.4% to N877.59.
“ we expect FX liquidity conditions to improve slightly, albeit still frail relative to historical standards, as it appears the CBN has regained its momentum regarding FX reforms.”, Cordros Capital said in a note.
If the recent convincing actions by the policymakers to turn the tide are sustained, analysts at Cordros Capital said they expect the local currency pressures to ease.
Nonetheless, the investment said it expects foreign investors to be keenly watching the development in the FX space with regard to the expected FX inflows as guided by the authorities, CBN’s recent actions in clearing its FX backlogs, and firm direction of short-term interest rates. Military Destroys 96 Illegal Refining Sites, Arrests 57 Suspects
