Naira scales eight month high 1,120/$ as dollars flood black market, speculators lose
The Naira on Thursday rose to an eight-month high of 1,120 per dollar on the parallel market, a.k.a black market, driven by a series of foreign exchange (FX) reforms of the Central Bank of Nigeria that has unlocked dollar liquidity.
Given the current exchange rate, the Naira has gained 62.95 percent (N705) over the dollar compared to the level of N1,825/$1 in February 2024.
“The dollar has fallen because there is no demand. The market is calm due to the holidays and there are enough dollars in the market now,” one trader said.
Nigeria’s currency on Monday before the holidays strengthened to 1,230.61 per dollar on the official FX market, despite the declining external reserves.
After trading on Monday, the Naira gained 1.66 percent as the dollar was quoted at N1230.61, stronger than N1,251.05 quoted on Friday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to the data released by the FMDQ Securities Exchange.
The intraday high closed at N1,261 per dollar on Monday, stronger than N1,281 closed on Friday. The intraday low appreciated to N1,200 from N1,220 on Friday.
Dollar supply by willing buyers and willing sellers dropped by 49.43 percent to $125.55 million on Monday from $248.27 million recorded on Friday.
Recall CBN on Monday reviewed the exchange rate for the Bureau De Charge (BDC) Operators to N1,101 per dollar from N1,251/$1 as it plans to sell $15.88 million to 1,588 eligible BDCs.
On June 14, 2023, the CBN enacted several significant reforms, including the abolishment of market segmentation, consolidation of all segments into the Investors & Exporters window (now called the Nigerian Autonomous Foreign Exchange), and the reintroduction of the Willing Buyer, Willing Seller framework.
In August 2023, the CBN resumed Forex sales to BDCs but implemented a restriction on the buying and selling spread by BDCs to +/-2.5 percent of the weighted average of transactions executed the previous day on the I&E window.
By March 2024, the volatility of the Naira had further decreased following additional reforms by the CBN aimed at enhancing transparency and inflows into the FX market. On March 28, the NAFEM closing rate stood at N1309.4, reflecting a significant appreciation from its peak of N1,650 on February 26, 2024, a report by FSDH stated.
Financial analysts have expressed optimism that the recent FX reforms, coupled with high interest rates and improved oil production, will bring stability to the FX market.
