The exchange rate between the Naira and the Dollar strengthened to N1,431/$ on Friday, March 22, 2024, closing the week on a positive note.
Data from the FMDQOTC, where the exchange rate is officially set, revealed that the official currency gained 1.52% at the close of business, continuing a rally that has now lasted 7 days.
The Naira has now gained over 12% in one week, suggesting the central bank’s policies, implemented aggressively since February, are beginning to show success.
What the data is saying
The exchange rate closed at N1,431/$1, the best rate since February 5th when it closed at N1419.86/$1
- According to the FMDQ, the Naira recorded an intra-day high and low of N1,468/$1 and N1,301/$1 respectively, while the NAFEX rate is currently N1,381.35/$1.
- Daily turnover was $199.7 million culminating in a total turnover of $1 billion this week alone suggesting that improved liquidity is now been experienced in the market.
- Nigeria’s external reserve position is currently $34.3 billion and is expected to rise to $35 billion according to projections from the apex bank.
- On the parallel market where the exchange rate trades unofficially, traders still quoted between N1400-N1480/$1 depending on who is buying or selling.
- The UK Pounds also fell below N2000/£1 in the parallel market.
CBN Interventions paying off
The Central Bank of Nigeria’s (CBN) recent policies have played a pivotal role in the strengthening of the Naira against the dollar, a trend highlighted by the significant appreciation in its value over the past week.
- Among the measures that have contributed to this positive outcome, the CBN’s strategic interventions in the foreign exchange market stand out.
- Traders who spoke to Nairametrics suggest the central bank was active in the official market during the week. The CBN likely sold over $50 million according to one trader with knowledge of the matter.
- By increasing the supply of dollars, the apex bank is addressing the demand-supply mismatch that is perceived to have previously led to the Naira’s depreciation.
- The CBN’s rigorous enforcement of foreign exchange regulations has curtailed speculative activities, contributing to exchange rate stability.
The recent strengthening of the Naira comes as a significant relief to the Central Bank of Nigeria (CBN), which had been facing considerable scrutiny over the currency’s depreciation.
- This scrutiny intensified with the introduction of the willing buyer, willing seller model, aimed at creating a more transparent and market-driven forex trading environment.
- However, critics suggest this may have exacerbated the currency crisis, especially as Nigeria’s external reserves were not robust enough to support such a move. They also pointed to its impact on inflation.
- The exchange rate’s impact on inflation is profound, given the correlation between the two.
In Nigeria, where the economy is significantly import-dependent, a weaker Naira makes imported goods more expensive, thereby fueling inflation.
- The rise in the February inflation rate to 31.7%, coinciding with a period of notable depreciation of the Naira, underscores this dynamic.
- A stronger Naira can help temper inflationary pressures by making imports less costly, contributing to overall price stability.
- For most Nigerians, a stronger Naira signals potential economic recovery and stability and that the country might be on the verge of overcoming some of its economic challenges.
