April 20, 2024

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Naira Show Signs of Recovery Against Dollar in Official Market

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Naira 1

CEM REPORT. MARKET | The Nigerian Naira displayed encouraging signs against the US Dollar in the official market, concluding the week at ₦1,548.25/$1. This represented a rise compared to the previous day’s closing rate of ₦1,595.11/$1.

Despite sustained demand pressures pushing the currency’s value down, the Naira managed to gain traction. Additionally, forex turnover witnessed a significant increase of 36.32%, reaching $296 million, indicating heightened activity in the foreign exchange market.

CBN Crackdown on Illicit Activities

The recent appreciation of the Naira coincides with the Central Bank of Nigeria’s (CBN) decisive actions against suspected illicit activities involving Bureau De Change (BDC) operators and the cryptocurrency platform, Binance.

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The Federal Government further imposed a substantial fine of $10 billion on Binance, accusing it of contributing to Nigeria’s foreign exchange challenges. In an attempt to narrow the widening exchange rate gap, the government plans to allocate $20,000 to each eligible BDC operator nationwide. These initiatives aim to inject much-needed liquidity into the market, potentially stabilizing the Naira’s value.

[READ ALSO] $26 Billion in Crypto Flows Raise Concerns in Nigeria, CBN Governor Vows Action

Government Initiatives to Stabilize Naira

According to NAFEM (Nigeria Autonomous Foreign Exchange Market) data, the domestic currency appreciated by 3.03% at the week’s end, closing at ₦1,548.25 to a dollar. This translates to a gain of ₦46.86 or a 3.03% increase compared to the previous day’s closing rate of ₦1,595.11.

Analysts believe that the CBN’s recent actions, coupled with the government’s proposed financial support for BDCs, could play a crucial role in stabilizing the Naira. However, it is crucial to monitor the long-term effectiveness of these measures.

Mixed Performance in Parallel Market

While the Naira exhibited positive movements in the official market, its performance in the parallel market, where forex is traded unofficially, painted a contrasting picture. The exchange rate was quoted at ₦1,530/$1, marking a 2.61% decline compared to the previous day’s closing rate of ₦1,490/$1.

This disparity highlights the ongoing challenges and complexities within the Nigerian foreign exchange market. Efforts to bridge the gap between the official and parallel market rates remain crucial for achieving greater stability.

Other Currency Movements

Beyond the Naira’s performance against the Dollar, other noteworthy movements occurred during the week. The Great British Pound (GBP) appreciated by 4.40% to close at £1/₦1,820, compared to £1/₦1,900 recorded the previous day.

Additionally, the Naira witnessed a 1.78% appreciation against the Euro, closing at ₦1690/EUR1 compared to ₦1720/EUR1 reported the previous day. These developments highlight the dynamic nature of the foreign exchange market, with various currencies experiencing fluctuations throughout the week.

Road Ahead:

While the Naira’s recent gains in the official market offer a glimmer of hope, it’s crucial to acknowledge the complexities within the larger economic landscape. The CBN’s ongoing efforts and the government’s proposed initiatives hold the potential to stabilize the Naira further, but their long-term effectiveness remains to be seen. Monitoring the situation closely and implementing comprehensive solutions will be essential for fostering a more stable and predictable foreign exchange environment in Nigeria.

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