The official window’s second day of the naira’s persistent appreciation has narrowed the difference between rates on the autonomous and parallel markets to one digit. This occurred as the top bank kept looking for ways to increase the liquidity of the foreign exchange markets.
In an effort to draw international portfolio investors to Nigeria, the Central Bank of Nigeria (CBN) offered Treasury notes on Wednesday for 21.45% of their face value. The authority auctioned OMO bills last week for the same purpose.
According to the CBN’s most recent data, foreign investors bought over $1 billion worth of Nigerian assets this month, with portfolio flows of at least 2.3 billion dollars so far in 2024 compared to 3.9 billion dollars overall for the previous year.
Speaking with MarketForces Africa, some currency analysts noted that exchange rates are moving near convergence level – negative because the official rate has worsened around the black market rate.
This is expected to have impacts on Nigerian companies’ production costs, which could not be as desirable. Producers who access foreign currency at an average of N1500- N1600 are expected to consider this in their product pricing.
Effectively, imported inflation will be transferred to Nigerians, increasing the consumer price index. At the official market, data from FMDQ revealed that the naira gained slightly in two-way markets trading on Thursday following a spike in gross external reserves balance to $34 billion
A slightly adequate supply of foreign currency to match the demand level strengthened the local currency against the US dollar, appreciating by 0.22% to close at N1,602.17 per greenback in the official market.
A similar pattern was noticed at the alternative market where the local currency freely traded against foreign currency. The parallel market saw a 0.13% strengthening, closing at N1,593 per US dollar. In its market update, Cowry Asset Management Limited told investors that this positive performance followed the conclusion of the recent Nigerian Treasury bills auction by the CBN.
The large auction sales on Wednesday aimed at boosting foreign investors’ interest in naira bonds, which pushed gross external reserves higher by 2.45% to $34.017 billion in days. In a note, Afrinvest revealed an expectation of marginal improvement in the naira across markets following efforts by the CBN to mop up excess system liquidity, ramp up OMO sales at attractive rates and eliminate FX market inefficiencies.
In the global commodity market, gold advanced to around $2,155 an ounce on Thursday, maintaining record highs. Investors closely monitored economic data from the US and awaited further comments from US Fed chair Jerome Powell, as well as a key jobs report on Friday, to assess the timing of potential interest rate cuts. As the US Fed softened its hawkish pose, the market is now expecting a rate cut to happen in June 2024.
