CEM REPORT, FINANCE | The Nigerian Naira defied expectations on Friday, January 26th, appreciating against the US Dollar at the close of business in the Nigerian Autonomous Foreign Exchange Market (NAFEM). This unexpected surge came amidst renewed optimism about the growth of the Nigerian economy.
CEM gathered that the Naira gained 1.0% or ₦9.06 against the Dollar on Friday, closing at ₦891.90/$1 compared to ₦900.96/$1 the previous day. This uptick was solely against the Dollar, as the Naira remained stable against the Pound Sterling and Euro at ₦1,133.28/£1 and ₦969.92/€1, respectively.
Analysts and economists have expressed cautious optimism for Nigeria’s economic outlook in 2024. Multiple forecasts, including projections from the International Monetary Fund (IMF) and the World Bank, predict a slight decline in inflation from the current levels above 22% to around 21%.
Additionally, GDP growth is expected to pick up to 3%, marking a modest but welcome improvement from the sluggish performance of recent years.
However, achieving sustainable growth hinges on a delicate balance: ambitious fiscal reforms must be met with effective budget implementation.
“The Naira’s recent appreciation is a positive sign, but it’s crucial to remember that supply constraints remain a major hurdle for sustained improvement in the FX market,” cautioned Bismarck Rewane, CEO of Financial Derivatives Company Limited.
However, the optimism surrounding the Naira’s performance in the official market was tempered by a decline in FX supply. Data obtained showed a 12.3% drop, or $14.22 million, in FX injection into the spot market compared to Thursday’s figure. This decrease, from $115.19 million to $100.97 million, could potentially hinder the Naira’s sustained appreciation.
Supply constraints continue to be a major obstacle, limiting the availability of dollars and exerting upward pressure on the exchange rate.
The Peer-to-Peer (P2P) market offered a glimmer of hope, with the Naira strengthening against the Dollar by N₦7 to trade at ₦1,386/$1, compared to ₦1,393/$1 the previous day. This suggests that retail investors are growing confident in the Naira’s upward trajectory.
Naira exchange at the Parallel Market
However, the parallel market painted a different picture. The Naira weakened against the Dollar by ₦20 on Friday, closing at ₦1,420/$1, compared to ₦1,400/$1 the previous day. This divergence highlights the continued pressure on the Naira in unofficial markets, despite its gains in the official market.
The Naira’s recent performance is a welcome sign for the Nigerian economy, but it’s still too early to celebrate. Achieving sustainable growth requires a multi-pronged approach that addresses fiscal reforms, budget implementation, and, crucially, increasing FX supply. Only then can the Naira truly regain its footing and navigate the turbulent waters of the global market.
