Following the announcement by the Central Bank of Nigeria(CBN) that it had cleared all valid foreign exchange backlog, the value of the naira took a turn for the north, as it appreciated by 12 per cent by the end of last week’s trading activities.
The value of the naira which had closed the previous week at N1,502 to the dollar saw a spike in value to close last week Friday at N1,431.49 to the dollar. Asides the liquidity provided by the clearing of the backlog, the inflow into the Nigeria Autonomous Foreign Exchange Market (NAFEM) also boosted liquidity.
CBN, last week, said it had fully cleared verified foreign exchange backlog with the latest payment of $1.5 billion. Asides this, the apex bank also intervened in the market thrice within the week with total sales of $195 million.
Inflow at the official market had improved by 47.2 per cent week on week to $1.5 billion from $1 billion inflow recorded the previous week. Similarly, the value of the naira at the parallel market had improved by 6.7 per cent to sell at N1,495 to the dollar.
Trades at the NAFEM were consummated within the N1,300 – N1,640 to the dollar band.
In the Forwards market, the naira rates recorded appreciation across various contracts with the 1-month up by 9.6 per cent to N1,460.81/USD, 3-month which was up by 9.4 per cent to N1,500.26, 6-month which was up by 8.4 per cent to N1,562.99 and 1-year which was up by 6.5 per cent to N1,705.82 to the dollar.
Analysts note that the CBN’s increased intervention in the foreign exchange market which includes the payment of the last portion of the forex backlogs and the commencement of retail sales of dollars to banks within the range of N1,300 – N1,400 to the dollar will boost confidence in the FX market and stabilise the naira.
While the CBN is expected to continue its forex intervention in the near term, analysts at Cordros Research say they “do not expect a substantial increase in forex liquidity due to the relatively weak forex reserves. However, barring any notable shocks, the reduced currency speculation and improved FPI inflows due to high naira yields may continue to strengthen the local currency in the near term.”
Nigeria’s foreign exchange reserve had paused its five-week accretion trend last week as the gross reserves level decreased by $96.41 million week on week to $34.32 billion as at March 20, 2024.
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