The naira exhibited signs of moderate stability as foreign exchange (FX) turnover surged by 138.67% on the Nigerian Autonomous Foreign Exchange Market (NAFEM) window.
On Tuesday, 11 June 2024, the closing rate for the naira was 1,473.66/$1, which was an appreciation of 0.68% from the 1,483.62/$1 recorded from previous trading day.
This slight appreciation indicated a momentary stabilization in the exchange rate, offering a degree of reassurance to market participants.
Also, the gradual improvement in the closing rates over these two days points to a potential stabilizing trend in the foreign exchange market.
Rise in FX turnover
A key aspect of the recent forex market activity has been the notable fluctuations in forex turnover.
On June 10, 2024, forex turnover was recorded at $161.69 million, reflecting a substantial decline of 39.95%.
This sharp decrease might have raised concerns about liquidity constraints or market sentiment shifts, indicating possible underlying uncertainties in the market.
However, contrary to the preceding day’s trend, June 11, 2024, witnessed a significant surge in forex turnover, which soared to $385.91 million.
This increase of 138.67% is significant, suggesting a rebound in market activity and possibly a renewed confidence among market participants.
The factors contributing to this surge could range from policy interventions, shifts in market sentiment, or broader economic developments influencing trading volumes.
Trading range
The naira further displayed moderate stability as it traded within a relatively narrow range, with a high of N1,495/$1 and a low of N1,415/$1. The naira traded below previous highs of over N1,500/$1.
This trading range indicates a level of resilience and stability in the Naira’s exchange rate, even as turnover volumes experienced significant volatility.
Such stability is crucial for market confidence and economic planning, as it reduces the unpredictability associated with exchange rate movements.
What you should know
- Despite these positive indicators, the Nigerian economy still faces considerable hurdles. Inflation remains high, and external economic pressures, including fluctuating oil prices and global market uncertainties, continue to pose risks.
- Moreover, ensuring a consistent supply of foreign exchange to meet the market’s demand will require ongoing efforts and strategic interventions.
- The Central Bank of Nigeria (CBN) recently announced that International Oil Companies (IOCs) can sell 50% balance of their repatriated export proceeds to authorized forex dealers. The CBN’s new directive is poised to have a significant impact on the Nigerian forex market. By allowing IOCs to sell a substantial portion of their repatriated proceeds, the directive aims to boost forex liquidity, helping to mitigate volatility and foster a more stable economic environment.
- Also, Afrexim Bank earlier announced the disbursement of $925 million- another tranche of the $3.3 billion crude oil-backed loan agreement it entered into with the NNPC last year. The bank disclosed this in a statement on its website stating that the current disbursement brings the total payment for the facility to $3.175 billion. The bank explained that the current payment was raised from crude oil off-takers like Oando Group and Sahara Energy as well as others.
- Following the unification of the FX market in June 2023 and the subsequent depreciation of the naira, the federal government through the NNPC secured the $3.3 billion crude oil-backed loan facility from the African Export-Import Bank (Afrexim Bank). The National Economic Council (NEC) had explained last year that it was confident the loan would help stabilize the forex market in light of the severe volatility.
- On the fiscal side, President Bola Ahmed Tinubu plans to discontinue the payment of taxes and levies in foreign currency through an executive order. To reduce pressure on the naira, the order also mandates that all levels of government and their agencies prioritize the procurement of Made in Nigeria goods and services.
- Fitch Ratings recently noted that the ongoing foreign exchange (FX) reforms are necessary to boost foreign direct investment (FDI) and foreign portfolio investment (FPI). In a presentation on Monday, by Gaimin Nonyane, Director of Sovereigns at Fitch, it was stated that Nigeria’s current account (CA) will be strengthened by increasing oil refining capacity, but the reforms are still very crucial in attracting foreign investments.
