The naira strengthened to N1,572.86 per dollar on the official market on Monday, following N1,602.75/$1 on Friday, signaling a solid start to the foreign currency market.
The country’s currency closed at N1,590 per dollar on the parallel market on Monday, up from N1,605/$1 on Friday.
The Central Bank of Nigeria’s policy initiatives have caused the naira to stabilize further this week, according to some analysts.
The naira strengthened versus the dollar on both official and black market exchanges last week, contributing to the FX market’s bullish conclusion.
The dollar that FX market participants supplied fell by 20.99 percent to $848.14 million from $1,073.50 million the week prior.
Last week, the pressure on the naira exchange rate subsided as the nation’s foreign reserves continued to rise for a second straight month.
Jimi Ogbobine, the head of Agusto Consulting, underlined the vital significance of resolving the demand-supply dynamics within the FX market in answer to questions from reporters. He outlined the problems that the supply side is facing, mentioning both long-term and short-term problems that have an impact on the market’s supply side.
The Central Bank of Nigeria (CBN) has launched some short- to medium-term palliative measures targeted at enhancing market supply to address these issues. Portfolio investors have been drawn to the market by these measures, especially foreign portfolio investors (FPIs), who are now welcome to return to the Open Market Operation (OMO) space.
“What the CBN is now doing is incentivizing investors to keep the naira, which should eventually reduce the pressure on the FX market so that FPIs begin to flow again, stabilizing the FX market. In order to stabilize the foreign exchange market, foreign direct investors (FDIs) will find it more appealing. It implies that the issuing of Eurobonds, another supply measure for FX, is possible. When the market is ready for stabilization, all of these supply dynamics can eventually materialize,” he stated.
Investors are drawn to the OMO market because of the high yields available, with rates for banks and FPIs topping 25 percent. In a similar vein, rates on Treasury bills have been roughly 20 percent for the duration of the 364-day issue. In spite of this, the actual return is still significantly negative—more than 11 percent—with inflation at 31.70 percent at the moment. Investors, who anticipate lower inflation and higher interest rates, are upbeat about the CBN’s future course.
According to Ogbobine, the CBN’s plan is to encourage investors to hang onto their naira, hence reducing the pressure on the foreign exchange market. It is anticipated that this will draw FDIs and make Eurobond issuance easier, which will affect the dynamics of the FX supply.
Furthermore, domestic investors who had been betting against the naira are now finding that buying Treasury bills yields higher returns.
Despite these changes, Ogbobine maintained confidence in the possibility of FX stability.
“The CBN’s measures indicate a deliberate attempt to stabilize the financial markets and encourage naira investments, with expected benefits for investor confidence and foreign exchange stability.”
According to CBN data, foreign currency reserves rose from $33.17 billion at the start of February to $34.37 billion on March 12, 2024, a 3.62 percent rise.
Daily trade statistics from the FMDQ showed that the naira ended the day steady at 1,602.75/$, 0.39 percent firmer than 1,608.98/$1 on Thursday at the Nigerian Autonomous Foreign Exchange Market.
