Naira Surges as Dollar Supply Jumps with CBN’s $20m Boost

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Updated on: October 13, 2024 3:39 am GMT

The Naira has shown remarkable strength against the US dollar, ending the week at N1,541.52 in the official foreign exchange market. The recent appreciation reflects a significant increase in dollar supply, which surged by 117% as market dynamics shifted favorably for Nigeria’s currency. This change comes as the Central Bank of Nigeria (CBN) intervened by selling $20 million to banks, aiming to stabilize and reset the current foreign exchange (FX) direction.

Dollar Supply Increases Amid Naira Strengthening

Recent data from the Financial Market Development Quotation (FMDQ) revealed that total foreign exchange transaction turnover skyrocketed from $87.51 million to $190.57 million in just one day. This represents an impressive increase of $103 million, or 117%. Such a substantial uptick in dollar supply played a crucial role in boosting the Naira’s value.

  • On Friday, the Naira appreciated against the US dollar, closing at:

– Official rate: N1,541.52

– Parallel market: N1,663

This performance marks a notable week-on-week appreciation for the Naira, which was valued at N1,546.41 and N1,665 the previous Friday. These shifts indicate a positive trend for the Naira as it closes the week with a stronger standing.

Central Bank Actions to Stabilize the FX Market

The CBN’s recent measures aimed at reorienting the FX market have contributed to this newfound strength. On Wednesday, the CBN surprised market participants by selling $20 million to authorized dealer banks, which resulted in the Naira rising to N1,539.65 in the Nigerian Autonomous Foreign Exchange Market (NAFEM).

Key actions taken by the CBN include:

  • Dollar Sales: The CBN implemented targeted dollar sales to shake off speculative trading and stabilize prices.
  • Market Intervention: By providing liquidity, the bank sought to prevent the Naira from exceeding the N1700 threshold, which could create a more volatile marketplace.
  • Regular Monitoring: The CBN is set to hold its 297th Monetary Policy Committee meeting next week to discuss interest rates and other monetary policy measures.

These actions signal an ongoing commitment from the CBN to support the Naira and enhance the country’s FX landscape.

Market Response and Ongoing Trends

Analysts noted that while the Naira has appreciated week-on-week, a persistent gap remains between official and parallel market rates. The average exchange rate for the Naira in the parallel market closed at N1,664, which introduces potential risks for speculative trading activities.

Recent figures suggest that:

  • Total NAFEM turnover: Increased by 4%, reaching $1.2 billion.
  • Dollar inflows: The official window saw USD inflows amounting to approximately $543.1 million, with the CBN accounting for a significant portion.

The disparity between official and parallel rates puts pressure on the Naira and suggests that continued monitoring and intervention may be necessary.

Global Influences Impacting the FX Market

Internationally, the forex market remains influenced by several factors, including fluctuations in oil prices and global economic indicators. With Brent crude prices declining to $73.13 and West Texas Intermediate (WTI) prices falling to $70.48, the strength of Nigeria’s economy, heavily tied to oil exports, faces challenges.

Conversely, softer dollar prices have led to a rise in gold, which has reached around $2,597.70 per ounce. This presents a complex landscape where domestic currency performance may be affected by global economic shifts and external market pressures.

Conclusion

The Naira is getting stronger, and there’s more money available in the market. This shows that the Central Bank of Nigeria (CBN) is taking smart steps that are helping right now. Next week, the Monetary Policy Committee will meet, and everyone is eager to hear about interest rates and other money policies that could affect the foreign exchange (FX) market soon. The CBN’s work to keep the Naira stable against the US dollar is very important for Nigeria’s economy. If these plans go well, they might lead to a brighter economic future for the country.

Freelance Personal Finance Writer and Editor, specializing in student loans and financial literacy. As a recognized expert and speaker, Zina provides clear, actionable advice to help individuals navigate their financial journeys. Her insightful articles and engaging presentations are designed to empower readers and listeners with practical knowledge and strategies for managing their finances effectively.