Naira Continues Appreciation Against US Dollar: Factors and Implications
The Nigerian naira sustained its upward momentum against the United States dollar on Wednesday, marking a positive trend at both the official foreign exchange market and the parallel markets, much to the satisfaction of Nigerians.
According to data from the FMDQ Securities Exchange, the naira appreciated by N16 or 1.26 percent at the Nigerian Autonomous Foreign Exchange Market, with the dollar quoted at N1,262.85/$ on Wednesday, a significant improvement from N1,278.58 recorded on Tuesday.
This ongoing positive performance signifies a steady trajectory for the local currency against the greenback, with expectations pointing towards further appreciation.
The recent strengthening of the naira has been attributed to various foreign exchange policies implemented by the Central Bank of Nigeria (CBN) aimed at bolstering dollar supply and fostering transparency within the FX market.
Key initiatives include the abolition of market segmentation and the consolidation of all markets into the Investors & Exporters window (now Nigerian Autonomous Foreign Exchange) in June 2023. Additionally, the reintroduction of the Willing Buyer, Willing Seller framework and other reforms have played a crucial role.
Further reforms in January 2024 directed International Money Transfer Operators to quote exchange rates for naira payout based on prevailing market prices. Subsequent actions by the CBN in February 2024 eliminated caps on interbank Forex transaction spreads and restrictions on interbank proceeds sales. Moreover, the CBN restricted the payout of Personal Travel Allowance and Business Travel Allowance to electronic channels only.
The impact of these measures became evident in March 2024, as the volatility of the naira decreased, reflecting improved transparency and inflows into the FX market.
Currency traders, speaking to The PUNCH, linked the naira’s appreciation to reduced demand for the dollar and the CBN’s decision to directly sell foreign exchange to operators.
At the parallel market, the naira strengthened to N1,250 against the dollar, marking a gain of 0.8 percent (N10) compared to the previous day’s close at N1,260. This improvement reflects a 46 percent increase in the naira’s value against the dollar since its lowest point of N1,825/$ on February 20, 2024.
Overall, the narrowing exchange rate disparity between intra-day high, intra-day low, and closing rates, all falling below N130, indicates a stabilizing trend in the foreign exchange market.
The average daily turnover, which increased to $116 million from $111.8 million, further underscores the growing confidence in the naira’s performance and the effectiveness of the CBN’s interventions.
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