After the Central Bank of Nigeria (CBN) announced it had settled all confirmed foreign exchange backlogs, the naira’s value improved, rising by 12% by the end of last week’s trading.
The naira, which ended the previous week at N1,502 to the dollar, increased in value to close at N1,431.49 to the dollar last Friday. This boost in value was helped by the clearing of backlogs and increased activity in the Nigeria Autonomous Foreign Exchange Market (NAFEM), which added more liquidity to the market.
Last week, the CBN announced it had paid off a $1.5 billion foreign exchange backlog. In addition, the central bank intervened in the market three times last week, selling a total of $195 million.
The inflow of funds into the official market rose by 47.2% week over week to $1.5 billion, up from $1 billion the week before. The naira’s value also improved in the unofficial market, where it went up by 6.7% to N1,495 to the dollar. Transactions in the NAFEM were made within a range of N1,300 to N1,640 to the dollar.
In the forwards market, the naira saw increases across different time frames, with a 9.6% increase for the 1-month contract to N1,460.81/USD, a 9.4% increase for the 3-month contract to N1,500.26, an 8.4% increase for the 6-month contract to N1,562.99, and a 6.5% increase for the 1-year contract to N1,705.82 to the dollar.
Analysts believe that the CBN’s active role in the foreign exchange market, including clearing the forex backlog and starting dollar sales to banks at rates between N1,300 and N1,400, will help build confidence in the foreign exchange market and stabilize the naira.
While the CBN plans to continue supporting the forex market, analysts from Cordros Research do not foresee a significant boost in forex liquidity due to the limited forex reserves. However, they expect that the reduction in currency speculation and the attraction of foreign investments because of high naira yields could help strengthen the naira in the short term.
Nigeria’s foreign exchange reserves saw a slight decline last week, breaking a five-week growth trend, and stood at $34.32 billion as of March 20, 2024, down by $96.41 million from the previous week.
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