Despite declining foreign exchange inflows in recent weeks, the naira has kept unexpectedly steady. The naira has managed to resist severe depreciation pressures, somewhat thanks to robust domestic market activity and consistent central bank support, even with rising worries about decreasing forex supply.
On Monday, the naira showed a slight rise at the Nigerian Foreign Exchange Market (NFEM), finishing at ₦1,531.95 to the dollar. Official figures from the Central Bank of Nigeria (CBN) show a minor increase of ₦1.79 against Friday’s opening rate of ₦1,533.74.
The rate stayed steady at ₦1,560 per dollar in the parallel market, also known as the black market. According to street merchants, TNC found some rate stability after last week saw increased demand pressure on the naira, which fell from ₦1,530 to ₦1,560.
Data from Coronation Merchant Bank, however, show that total foreign exchange inflows decreased further last week to $791.10 million, from $979.10 million the week before. Foreign portfolio investors made up $60.90 million, or 7.70 percent of all inflows.Other foreign sources provided a slight 0.76 percent.
Local market participants surprisingly moved up to cover the vacuum. Nonbank companies accounted for the majority of TNC’s contribution, $483.60 million or 61.13 percent. Adding $168.60 million, or 21.31 percent, exporters and importers were also very important. Individual remittances amounted to a small $3.50 million, whereas the CBN’s contribution was $68.40 million.
Analysts relate the strength of the naira to a recent increase in Nigeria’s foreign reserves, which grew by $726.80 million or 1.88 percent to $39.36 billion. The International Monetary Fund’s optimistic revision of Nigeria’s economic growth predictions also lifted sentiment, which lowered speculative activity.
The naira rose somewhat last week at the Nigerian Autonomous Foreign Exchange Market (NAFEM), appreciating by 0.06 percent to close at ₦1,533.74 per dollar, compared to ₦1,534.72 the week before. Reflecting the relative quiet of the market, the street market premium is still limited at just ₦6.26 or 0.41% over the official rate.
Experts that for the time being the market is projected to remain at between ₦1,500 and ₦1,600. However, they warn that further appreciation could be constrained without a rebound in FX inflows. Still, near-term support might come from investors’ confidence and the constant increase in external reserves.
Headwinds notwithstanding, the current performance of the naira paints a picture of hope and slowly maturing FX markets that are increasingly proving to be resilient to volatilities.
