… Exchanges at N1.505/$
The naira saw a renewed pressure on Tuesday as the dollar traded at N1,505 on the parallel market, also known as black market.
This represents 0.99 percent depreciation compared to N1,490 quoted since almost a month ago on the black market. Traders attributed the naira weakness to increased demand for dollars by individuals ahead of the summer holiday and importers who needed the dollars to import raw materials.
“It is too early to conclude that the renewed pressure on the naira is as a result of the coming summer holiday because it is just a one day depreciation,” said Abiodun Keripe, managing director, Afrinvest Research and Consulting.
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He noted that there is an expected $2.5 billion inflow that can provide succour to the external reserves and strengthen the naira. He said Nigeria is operating a willing buyer, willing seller market and the exchange rate is determined by the level of liquidity in the market.
Nigeria’s external reserves have increased by 2.09 per cent year-to-date to $33.70 billion as of June 21, 2024 from $33.01 billion recorded on January 2, 2024, data from the CBN showed.
The local currency had steadied at N1,490 in almost one month following moderation in demand for dollars by the end users.
In an interview with Bloomberg, Olayemi Cardoso, governor of the Central Bank of Nigeria (CBN), expressed optimism about the recent stability in the foreign exchange market, indicating a potential end to the period of volatility.
“I do believe that we have more or less seen the worst in terms of volatility. We are happy that the market is now such that willing buyers and willing sellers operate within the market,”
“In the past two or three weeks after a period of volatility, we’ve seen a lot of stability within the market, there’s hardly been any movement in the currency,” Cardoso said in an interview with Bloomberg today.
Cardoso noted that confidence has returned to the market along with increased inflows. The governor highlighted that the rates have converged, unlike the past scenario where multiple rates existed. “Now we have more or less one rate, which we believe is beneficial. It allows companies to plan effectively and provides a clearer direction for investors in our economy,” Cardoso said.
The CBN has strategically employed various monetary tools to maintain the naira at a willing buyer and willing seller price. These measures include a 750 basis point hike in interest rates, clearing $7 billion in FX forwards, banning the use of foreign currency-denominated collaterals for naira loans, selling dollars to BDCs, and licensing an additional 14 IMTOs, among others.
Cardoso emphasised that the CBN is currently in a favorable position and will continue to take all necessary actions to improve the macroeconomic fundamentals affecting the market.
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When asked whether the naira will strengthen further by the end of the year or remain stable, Cardoso noted that this would depend on various factors.
Fitch Ratings, an international credit rating agency, has projected that the Nigerian currency will end the year at 1,450 to the dollar.
Cardoso mentioned that initial panic buying occurred due to investors’ concerns about unfulfilled requests. However, with improved market liquidity, investor fear has diminished, leading to more measured buying decisions.
He also stressed the importance of the CBN’s vigilance in monitoring market operations and utilizing appropriate tools to achieve the best possible value.
“Moreover, it is crucial to highlight the close collaboration between monetary and fiscal policies. I believe this complementarity will help us achieve the optimum rate for the naira over time,” he concluded.