Following the Central Bank of Nigeria’s decision last week to raise the Monetary Policy Rate (MPR) by a record amount among other policies intended to stabilize the naira and enhance the availability of dollars, the naira is expected to continue its upward trend this week.
The CBN increased its MPR, or benchmark interest rate, by 400 basis points to 22.75 percent on Tuesday, February 27, 2024, from 18.75 percent in July 2023.
Following Friday’s trade, the naira saw a 3.03 percent increase for the third day in a row as the dollar was quoted at N1,548.25, up from N1,595.11 on Thursday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to data from FMDQ Securities.
The aggressive CBN tightening, according to Bismarck Rewane, managing director and chief executive officer of Financial Derivatives Company Limited, will strengthen the currency, deflate the stock market in a few days, and restore some sanity to the markets.
According to Rewane, the FX market would witness a significant increase in the value of the naira.
The naira has appreciated 2.24 percent since the policy decision, with the dollar closing at N1,548.25 on Friday as opposed to N1,582.94 on Monday, the day before the CBN announced an interest rate hike.
The daily turnover of the foreign exchange market rose from $217.14 on Thursday to $296 million on Friday, a 36.31 percent rise.
The price of a barrel of Brent crude oil increased by 0.2 percent every month in February, to $81.91. According to a study by Afrinvest Securities Limited, this spike was caused by the market expectation of OPEC+’s impending decision regarding supply arrangements for the second quarter.
The nation’s external reserves increased by 1.1 percent in February of the same year, ending the month at $33.7 billion (as of February 29, 2024). Improvements in crude oil output, which increased to 1.4 million barrels per day in December 2023 from 1.3 million barrels per day in December 2023, helped to support this development.
Analysts also highlight early gains from the ongoing foreign exchange reforms, noting that the CBN has reported inflows of almost $2.0 billion so far this year.
In terms of exchange rates, there was a minor devaluation of the naira on the official market during February.
The US dollar gained value against the naira during the NAFEM window, with a monthly gain of 9.6%, and by the end of February, the exchange rate was at N1,595.11 per dollar.
As of February 29, 2024, the NAFEM segment’s daily average turnover increased by a strong 61.0 percent month over month to $217.1 million.
As a result of the CBN’s efforts to scale up Open Market Operation (OMO) sales at competitive rates, mop up excess system liquidity, and remove FX market inefficiencies, analysts at Afrinvest predicted a modest improvement in the naira across markets in March.
Recall we reported that the nation sold a record N1.056 trillion in one-year OMO notes on Friday, with a 27.3 percent yield on the one-year bill.
