Naira gains further as dollar supply surges by 180.58%

The naira appreciated further as the foreign exchange (FX) market recorded increased dollar supply on Friday at the official market.

This reflected dollar sales by banks in response to the directive by the Central Bank of Nigeria (CBN) on selling their excess dollars to the official FX market.

The volume of dollar transactions, or the daily FX market turnover, rose to $440.13 million on Friday from $156.86 million recorded on Thursday.

After trading on Friday, the naira gained 1.84 percent as the dollar was quoted at N1,435.53, which was stronger than N1,461.90 quoted on Thursday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), data from the FMDQ showed.

The intraday high steadied at N1,526 per dollar, while the intraday low strengthened to N838.96/$1 on Friday as against N891 per dollar.

The naira weakened to N1,440 per dollar at the black market due to strong demand for dollars after recovering to N1,400 on Wednesday following the CBN’s FX policies.

Nigeria’s foreign currency reserves showed a 1.5 percent month-on-month gain in January, reaching US$33.4 billion. Analysts from Afrinvest Securities suggest that this increase may be linked to approximately $3.3 billion inflows from the Afrexim Bank crude-oil-tied support facility.

The domestic foreign exchange landscape remains dynamic amidst global economic uncertainties.

The CBN within the week lifted the cap on the allowable limit around the previous day’s closing rate for International Money Transfer Operators (IMTOs), expanding the regulatory framework. This adjustment grants IMTOs increased flexibility in setting exchange rates.

The move followed the CBN’s announcement of limits on banks’ foreign currency holdings, expressing concern about the growing forex exposures on their balance sheets due to the local currency’s decline against the U.S. dollar.

Naira appreciation refers to an increase in the value of the Nigerian Naira compared to other currencies.

For individual households, it generally means that imported goods may become more affordable, potentially leading to lower prices for imported products, according to analysts.

Businesses, especially those that rely on importing raw materials or goods, may experience reduced production costs. However, businesses relying on exports might face challenges as their products may become more expensive for foreign buyers, analysts said.

Also within the week, the CBN pegged a minimum operating capital requirement for International Money Transfer Operators (IMTOs) at $1 million for foreign entities and an equivalent amount for local IMTOs.

At the money market this week, the average system liquidity saw a significant 95.1 percent improvement, reaching N261.3 billion in January 2024, driven by a series of standing lending facilities to N3.5 trillion and primary market repayments amounting to N578.0 billion, according to a report by Afrinvest.

Consequently, the Overnight Policy Rate (OPR) and Overnight (OVN) rates experienced notable surges, rising by 4.3 and 4.9 percentage points to 19.4 percent and 20.4 percent, respectively.

Within the primary market, the CBN conducted two rounds of auctions, offering N288.4 billion, a 55.9 percent increase from the previous month. Investor appetite remained robust, as evidenced by a bid-to-cover ratio of 38.7x, surpassing December’s demand of 23.6x.

Notably, the 364-day instrument, with an offer of N269.8 billion, recorded the highest buy interest, boasting a bid-to-cover ratio of 40.9x against sales of N11.1 trillion. The financial landscape in January showcased resilience amid liquidity shifts and heightened market activity.