CEM REPORT, CURRENCY| The Nigerian Naira is experiencing a remarkable turnaround, defying earlier predictions of a steep decline. On Tuesday, the Naira reached a high of ₦1,000 per US dollar on the black market, its strongest position in eight months.
This news comes as a welcome relief after a period of significant devaluation that had many fearing the Naira could reach ₦2,000 per dollar just a few months ago.
Traders are reporting a rise in dollar supply, fueling optimism for the Naira’s continued strengthening in the coming days. Analysts suggest that clues regarding the Naira’s short-term trajectory might be revealed by the rate at which the Central Bank of Nigeria (CBN) sells dollars to Bureau De Change (BDC) operators during their upcoming auction this week.
CBN Intervention and Market Impact on Naira
Last week, the CBN took a significant step by revising the exchange rate for BDCs to ₦1,101 per dollar, a decrease from N1,251 the week before. Additionally, the apex bank, which allocates $10,000 to each BDC weekly, mandated them to maintain a maximum spread of 1.5%, effectively setting a ceiling of ₦1,117 per dollar for their sales.
This move by the CBN has established a practical floor for the Naira on the black market ever since they resumed dollar sales to BDCs in February. The current market rally aligns with earlier predictions from a Goldman Sachs economist who anticipated the Naira trading below ₦1,000 in the coming months.
Official Market Performance
So far in 2024, the Naira has witnessed a remarkable 52.08% (₦625) appreciation against the dollar on the black market. The positive trend extends to the official Nigerian Autonomous Foreign Exchange (NAFEM) window as well. On Monday, the Naira closed at ₦1,136.04 per dollar, gaining ₦6.32 compared to the previous Friday’s closing of ₦1,142.38 per dollar.
It’s important to note that the black market exchange rate typically deviates from the official rate set by the CBN. This difference arises due to factors like limited access to foreign exchange through official channels and currency speculation. While the black market offers a more flexible exchange process, it’s not regulated, and transactions carry inherent risks.
Looking Ahead
The Naira’s recent surge is a positive sign for the Nigerian economy. Increased dollar supply, strategic interventions from the CBN, and optimistic analyst predictions all contribute to a more hopeful outlook for the currency. However, it’s crucial to monitor the CBN’s upcoming auction and observe how the market reacts to determine if this upward trend is sustainable.
The next few weeks will be critical in determining the Naira’s long-term trajectory. Continued policy adjustments by the CBN, fluctuations in global oil prices a major source of Nigerian foreign exchange earnings, and overall economic performance will all play a role in shaping the future of the Naira.
