This month, the naira has only moved between 1,473 and 1485 per dollar, based on FMDQ data that Bloomberg gathered. As a result, its 100-day swings are at their lowest since November, and its 10-day rolling volatility is at its lowest point in a year.
President Bola Tinubu’s year-long reforms, which relaxed regulations on the currency and moved its value closer to street rates, are partially responsible for the current calm. According to experts, dollar inflows are now lowering purchasers’ requirements to stock up on foreign currency, reducing demand and pricing distortions.
In response to an email, Samir Gadio, head of Africa strategy at Standard Chartered Bank in London, stated, “FX demand has slowed and onshore market participants seem more confident in the naira.” Demand is not being front-loaded very much,” he stated.
The Central Bank of Nigeria increased its benchmark interest rate to a record 26.25% during the Monetary Policy Committee meeting last month in an effort to draw in dollar inflows, reduce volatility, and slow inflation, which spiked to a 28-year high of 33.95% in May. In order to stabilise the market, the regulator is combining 750 basis points of rises overall this year with a significant naira liquidity mop-up through monthly bond sales as well as dollar inflows from external lenders.
New Waves
The most populous country in Africa received $925 million from Afreximbank last month as the last installment of a $3.3 billion prepayment facility backed by crude oil, which was meant to increase the amount of hard currency available on the local foreign exchange market. This month, the World Bank authorised $2.25 billion in assistance to assist Nigeria’s economic reforms, which is anticipated to increase foreign exchange liquidity even further.
According to BancTrust & Co. Investment Bank economist Omobola Adu, “less demand pressure and inflows from Afreximbank have helped the naira stabilise recently.”
“Over the short to medium term, the recently approved World Bank loan should provide more support for the local currency, pending other pote Initial inflows later this year,” he concluded.
