Surge in Dollar Supply Boosts Forex Turnover, Naira Strengthens to 1,572/$
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The supply of dollars has surged to $11 billion, driving an increase in forex turnover and contributing to the strengthening of the naira to 1,572 against the dollar, according to recent data analyzed by PUNCH.
This upsurge, observed over a span of two months, is a result of fresh reforms implemented by the Central Bank of Nigeria (CBN), with reports indicating a 185.75% rise in forex transactions between January and March 15th through the Nigerian Autonomous Foreign Exchange by Deposit Money Banks.
Key players in this increased liquidity include commercial banks, the CBN, and international oil firms, who have become major sellers of forex at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
The CBN’s directive on February 1, 2024, mandating banks to sell their excess dollar reserves within 24 hours, has been instrumental in bolstering liquidity within the forex market. The central bank’s move was prompted by the belief that some commercial banks were holding onto long-term foreign exchange positions to capitalize on volatile exchange rate movements.
Despite the naira reaching an all-time low of N1,850/$ in the parallel market, economists and stakeholders have generally approved of efforts to unify the official and parallel market exchange rates. However, concerns linger regarding the need for the CBN to clear forex backlogs estimated at over $5 billion and adequately fund forex demands at the official market to prevent further discrepancies between official and parallel market rates.
Further analysis of the dollar supply reveals a $4 billion turnover in January, with an additional $3.3 billion increase within two weeks of implementing the new rules in February. Subsequent weeks witnessed stabilized supply, with fluctuations recorded in the market turnover.
As the forex market anticipates a stabilization this week due to decreased demand pressure amid a decline in dollar supply, the naira marginally appreciated to 1,572.86 against the dollar at the official market on Monday. Additionally, daily forex market turnover saw a 2.19% increase to $140.45 million, contributing to a positive outlook for the naira in the near term.
In parallel markets, the naira’s performance was mixed, showing signs of fluctuation but ultimately closing the week with gains, reflecting a complex yet evolving forex landscape in Nigeria.
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