At the Nigerian Autonomous Foreign Exchange Market, the value of the naira increased by 2.4% to N1,278.58 per US dollar (NAFEM). Because of better foreign exchange liquidity last month, the exchange rate increased by almost 22% on a monthly basis.
After the apex bank sold an extra $10,000 to Bureau de Change, the exchange rate at the parallel market settled at #1250, with a 1.5% cap on the bid and sell ratio. In recent weeks, the exchange rate has turned the corner as demand in Nigeria’s independent foreign exchange market outpaced supply of foreign currency.
Analysts projected that the local currency will rebound from severe weight loss and ascribed the streaks of gains to FX markets reform. The key to changing the game is still the authority’s capacity to quell fictitious black market demand for US dollars.
FX speculation and round tripping including Binance cryptocurrency exchange peer to peer shadow economy aided riotous decline in the value of the local currency.
The apex Bank claimed that Binance became a conduit where some Nigerians converted local currency to US dollar for trades that failed to pass through the financial system.
The CBN estimated that more than $26 billion was transmitted via the peer to peer platform in one year, causing demand for the US dollar to rise faster amidst excess cash in the system.
To reduce cash level in the economy, the apex Bank embarked on aggressive mopping up with large ticket treasury and open market operations bills sales that attracted both local and foreign investors.
The increase short term borrowing instruments sales come with higher interest rates offered to market participants who parted with naira for papers.
But despite all the efforts to achieve market clearing rates, the naira has been moving range bound. Traded above #1600 is against market expectations, analysts said in chats with MarketForces Africa.
Since naira was floated, the CBN market intervention has reduced significantly…far below pre-pandemic support level to boost FX liquidity at the official window.
For exchange rate to recoup losses sustained due to spurious demand, analysts said there is need to ensure there is enough FX markets supply. Kebbi Govt. Approves N3.34bn Subsidy for 3,344 Prospective Pilgrims
So far, the CBN injections into banks and parallel markets have improved the outlook of the naira strongly.
“Naira faced significant pressure because demand and supply side are not balanced. If there’s more US dollars at the official window than what is need to pay offshore bills, exchange rate will bounce back”, analysts said.
