The naira defied the strong dollar despite positive macros from the world’s largest economy’s manufacturing data report that it grew in March for the first time since September 2022
Goldman Sachs predicts that in the next 12 months, the value of the naira relative to the dollar will increase to N1,200. On Monday, the naira settled at N1,255/$, up from its February low of N1,915/$ at the Bureau De Change segment of the Nigerian FX market.
According to the American Investment Bank, positive real interest rates and capital inflows will likely address the naira’s liquidity crisis.
A series of circulars issued by the Central Bank of Nigeria in recent weeks and months have assisted in plugging leaks and closing loopholes previously utilized by currency speculators and racketeers.
After its biggest increase in almost 17 years, the CBN increased its monetary policy rate by 200 basis points, from 22.75% to 24.75%.
A few weeks ago, the apex bank paid 26.06% for the one-year Treasury bill at its previous auction.
However, investors anticipate that at the auction on Wednesday, yields will rise above secondary market quotes, which currently stand at 22.75% for the one-year bill and 20.06% for the benchmark 10-year note.
Nigeria’s external reserves growth
The CBN recently declared that it has successfully resolved all valid foreign exchange backlogs, as promised by Governor Olayemi Cardoso, addressing inherited claims amounting to $7 billion.
- Nigeria’s external reserves have grown steadily over the past month, which has relieved some of the pressure on the naira/dollar exchange rate.
- According to the CBN’s website, the FX reserves are currently at roughly $34 billion, up from their 2023 peak of $32.9 billion
- The Economic and Financial Crimes Commission agents’ recent crackdowns on the operations of illicit BDC operators in Lagos, Abuja, and Kano have also contributed to a decrease in currency volatility.
According to CBN Governor Olayemi Cardoso, further efforts to improve the nation’s foreign exchange situation will result in more stability in the naira and foreign reserves.
He claims that working together with the Ministry of Finance and the NNPCL to guarantee that all foreign exchange inflows are repaid to the CBN will significantly improve foreign exchange flows and aid in the building of reserves.
More insights
In addition, the U.S. dollar had maintained its bullish run against other major currencies with favourable economic data releases.
- According to the Institute for Supply Management (ISM), U.S. manufacturing production climbed and new orders came in despite lower factory employment and higher input costs.
- The manufacturing sector, which makes up 10.4% of the GDP, had been declining for 16 months in a row until the upturn. That shrinkage lasted the longest from August 2000 to January 2002.
- The dollar index, which compares the value of the US dollar to six competitors, increased by 0.507% to 105.01 index points.
According to the CME FedWatch tool, markets on Monday reduced their bets on the Federal Reserve lowering rates in June after increasing the odds on Friday’s news of declining U.S. prices.