Naira Is Expected to Appreciate More Following CBN Measures

It has been reported that the Central Bank of Nigeria (CBN) and other financial institutions have made $2.5 billion available in the foreign exchange market over the past two weeks, which has caused the naira to appreciate N1,309 against the US dollar.

However, according to official data from the FMDQ Securities Exchange, the naira closed at N1309/$1 on Thursday, down from N1300/$1 the day before. The naira is still within the eight-week low, though, as it strengthens against the US dollar. Trading activities did not occur on Friday and Monday due to the public holiday.

Also, the Nigerian Autonomous Foreign Exchange Market witnessed a 106% increase in forex transactions between willing sellers and buyers at the close of trading on Thursday, reaching $857 million, the highest amount since the Central Bank's new forex policies went into effect.

The recent development is also said to be the highest turnover since 2021, closer to $760 million on June 2, 2022.

The average daily forex turnover for March was approximately $220 million, compared to the $177 million generated on average for this year.

The CBN generated $1 billion in sales in the penultimate week.

Moreover, the CBN is implementing measures linked to increasing liquidity in the forex market.

The unification of exchange rate windows, liberalisation of the foreign exchange market, elimination of banks' and airlines' FX backlog obligations, the establishment of a Price Verification System, limitations on banks' Net Open Position, elimination of the N2 billion daily cap on remunerable Standing Deposit Facility, and reorganisation of the Bureau De Change division are some of the major reforms made.

A crucial indicator in the financial industry, forex turnover shows how liquid and active the forex market is by totaling all the foreign exchange transactions completed in a given period.

High turnover rates indicate a very active market with many players buying and selling currencies, implying economic stability and investor confidence.

The apex bank began addressing suspected cases of excessive foreign exchange speculation and hoarding from Nigerian banks on the official end of the market.

Additionally, the top bank declared that the backlog of legitimate foreign exchange had been fully cleared. They announced that they had completed the payment of $1.5 billion to settle bank customer obligations, thereby resolving the remaining FX backlog balance. 

The US dollar trades at N1,280 on the parallel market, leading to the naira's continuous appreciation.

In line with the Central Bank of Nigeria's recent foreign exchange policy measures, the US dollar sold for anywhere from N1,280 to N1,305 on the black market, depending on who was buying and selling.

Back Story
The naira closed on Wednesday's trading session at N1,300/$1 when compared to the value of Tuesday's trading, which closed at N1,382.95, according to market data posted on the FMDQ website.

The rate on Wednesday signifies an increase of 6.0% over the N1,382.95 posted on Tuesday.

On Wednesday, the local currency closed at N1,300/$1, with an intraday high of N1,200 and a low of N1,460 to a dollar.

The official market segment's foreign exchange turnover for the business period was $416.10 million, compared to $245.58 million on Tuesday.

Also, the naira's upward trend continued on Wednesday in the parallel market.

According to recent surveys on the currency market, the naira was exchanged at N1,270/$1 and above on Wednesday afternoon at the Abuja Zone 4 axis.

This suggests an increase of N30, or 2.31%, from the N1,300 and higher it traded on Tuesday during the previous session.

Following the decline in the currency's value, the government has been working on different measures to stabilise the value of the local currency and reduce inflationary pressures in the nation. This has resulted in the recent gains the local currency has seen in official and unofficial markets.