Despite the market’s low dollar liquidity, the naira strengthened versus the dollar on Monday at the official foreign exchange (FX) market.
According to data issued by FMDQ Securities Limited, following trading on Monday, the naira appreciated by 3.41 percent versus the dollar, which was quoted at N1,354.21 compared to N1,400.40 on Friday at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
The amount of money offered by interested vendors and buyers fell dramatically by 57.98 percent, from $201.88 million on Friday to $84.83 million on Monday.Â
The FMDQ’s summary of the FX auction indicates that Monday’s intraday high closed at N1,441, which is less than the N1,435 quoted on Friday. However, the intraday low on Monday strengthened to N1,285 from the spot closing price of N1,300.40 on Friday at the NAFEM.
The black market, or parallel market, saw a decline in the value of the naira against the dollar. It closed at N1,430/$, down 5.49 percent from Friday’s stated price of N1,350/$.
The demand for US dollars by end-users who wish to travel for business, tourism, health, or education caused the naira’s depreciation to accelerate.
Month over month (m/m) in April 2024, the naira lost 5.9% of its value relative to the dollar due to heightened demand and insufficient liquidity on the parallel market. In April, the parallel market saw a 2.96 percent decline in the value of the local currency.
The naira’s sharp increase last month, according to TimeLine Consults CEO and economic analyst Shuaib Idris, was unsustainable because it wasn’t caused by improvements in the economy.
“Recent changes in Nigeria’s foreign exchange market are not shocking. The naira’s sharp increase in value in a little amount of time was unsustainable since it was not the result of improved economic conditions or fundamentals.”
Afrinvest Securities experts, however, predict that the naira will stay at its current level. Afrinvest Securities Limited experts predicted that “we expect the Naira to be exchanged within the current band, barring any shocks.”
The previous increase in the Monetary Policy Rate (MPR) and other rates had a favorable effect on the foreign exchange market, according to Bamidele Amoo, a member of the Monetary Policy Committee (MPC). Thus, additional increases in MPR will continue to contribute to the establishment of favorable conditions for reducing the degree of volatility in the value of the naira.
The CBN increased the MPR, or benchmark interest rate, by 600 basis points in a single month to 24.75 percent in March 2024 from 18.75 percent in July 2023 as part of its tightening steps to control inflation.
