Naira gains on foreign exchange marketse last week, both in the official and unofficial markets, following the government’s announcement of plans to enhance liquidity in the foreign exchange market.
Over recent months, the naira had seen a significant weakening in both authorized and unauthorized market segments, especially after the Central Bank of Nigeria (CBN) moved to unify the FX window using the Investors and Exporters (I&E) window in June.
This decision led to increased volatility in the domestic currency due to limited dollar supply and surging demand.
To counter the effects of forex volatility on the economy, the federal government had repeatedly pledged to augment supply in the market.
The positive turn in the naira’s performance last week indicated a potential influx of liquidity.
On Friday, market data from FMDQ revealed that the naira closed at N776.14 to a dollar, marking a 2.2% appreciation from N793.28 recorded on Thursday.
This rate represented a significant 22% gain from the beginning of the week when the naira closed at N993.82.
The currency experienced substantial gains on Tuesday and Wednesday, closing at N815.32 and N786.00 per $1, respectively.
In the parallel market, the naira’s appreciation was even more significant.
At the start of the week, it traded at N1,160 per dollar but closed on Friday at N950.00 per dollar, indicating a drop in demand for the dollar and boosting the naira’s value.
This positive trend in the FX market followed the statement made by Nigeria’s Minister of Finance and coordinating minister of the economy, Wale Edun, who hinted at an expected $10 billion worth of foreign exchange entering the country in the near future.
The minister’s announcement boosted market sentiments, indicating the government’s commitment to enhance liquidity and stability, as well as attract foreign investors to the Nigerian economy.
Edun explained that President Tinubu had signed an executive order enabling all cash within the domestic economy to legally enter the formal money supply, providing a significant boost to the market.
Additionally, the Central Bank of Nigeria cleared matured forward foreign exchange contracts with several banks, aiming to stabilize the naira.
The backlog of overdue forward payments, estimated at $6.7 billion, was settled, further influencing the naira’s positive performance.
Razaq Fatai, Research and Advisory Lead at Vestance, highlighted that the recent gain in the local currency’s value was primarily due to the CBN’s efforts in clearing the backlog of dollar demand.
While this indicated increased FX liquidity in the coming months, Fatai cautioned that fundamental issues, such as poor crude oil production due to theft, still existed.
Addressing these challenges is crucial for achieving long-term FX stability in the country.
