Naira Gains To N1,560.57/$1 At Official FX Market

The Naira strengthened on the official market N1,560.57 to the dollar, driven by foreign exchange (FX) reforms.

The summary of the FX trading on Tuesday revealed that the naira appreciated by 0.79 percent as the dollar was quoted at N1,560.57, which was stronger than N1,572.86 quoted on Monday at the Nigerian Autonomous Foreign Exchange Market (NAFEM).

This is even as indications emerged that the benchmark interest rate would further be raised when the Monetary Policy Committee holds its second meeting for the year next week. LEADERSHIP gathered that the governor of the Central Bank of Nigeria (CBN) Dr Olayemi Cardoso voted for the highest increase in rates at the last meeting.

The naira has gained 4.28 per cent of its value against the dollar when compared to the lowest of N1,627.40 per dollar closed on March 8, 2024 at NAFEM, according to data compiled from the FMDQ Securities exchange.

Intraday high closed at N1,626.50 per dollar on the spot on Tuesday while the intraday low closed at N1,415/$1 on the same day.

The daily foreign exchange market turnover printed at $195.13 million on Tuesday.

At the parallel market, also known as the black market, the naira strengthened further to 1,570 per dollar as against 1,590 closed on Monday.

Several analysts expect the naira to stabilise further this week, following the introduction of policy measures by the Central Bank of Nigeria.

Some of the reforms include: the unification of the foreign exchange market; promotion of a willing buyer willing seller market; removal of all limits on margins for the International Money Transfer Operator (IMTO) remittances; introduction of a two-way quote system and the broad reforms in the Bureau De Change (BDC) segment of the market to restore stability, enhance transparency, boost supply, and promote price discovery in the Nigeria Autonomous Foreign Exchange Market.

Cardoso, said in his personal statement at the last rate decision meeting that “This strategic move also holds the potential to attract the capital inflows necessary to enhance liquidity in the foreign exchange market and bolster the currency in the immediate term.”

The pressure on the naira/dollar exchange rate is beginning to ease as Nigeria’s external reserves have sustained growth in one month.

The decision at the February meeting which was the very first to be conducted by Cardoso since his appointment in September last year, is a move away from the desire of President Bola Ahmed Tinubu that interest rate be reduced to allow small businesses increased access to cheap funding.

Cardoso in his statement at the last MPC had voted to increase the benchmark interest rate to 23 per cent as against the 22.5 per cent that many of the MPC members voted for, the highest rate thus voted at the meeting.

His basis for increasing the rate is to curb the spiralling inflation in the country and further drive investments in the country. Inflation rate in the country which has refused to abate had spiked to 31.7 per cent in February further giving reasons for a hawkish monetary policy.

The CBN governor had noted that the post-COVID-19 fiscal support and subsequent deficit financing have created a lax financial environment, culminating in surplus liquidity within the banking system.

“This surplus liquidity has not only directly fueled inflation but also intensified pressure on the foreign exchange market due to heightened demand for foreign currency as an alternative store of value.

“It is imperative to deploy monetary policy tools to mitigate these pressures and foster price stability. Adopting a tighter monetary stance will steer us towards achieving positive real interest rates, a crucial goal to stimulate savings and investment within the domestic economy. This strategic move also holds the potential to attract the capital inflows necessary to enhance liquidity in the foreign exchange market and bolster the currency in the immediate term.

Data from the CBN showed that the foreign currency reserves increased by 3.62 percent to $34.37 billion as of March 12, 2024 from $33.17 recorded at the beginning of February 2024.

The CBN recently announced a remarkable upswing in Diaspora remittances, soaring by 433 percent to reach $1.3 billion in February, compared to $300 million in January.

The Monetary Policy Committee (MPC) meeting, which held on February 26 and 27, 2024, raised the MPR by 400 basis points to 22.75 from 18.75 per cent., adjusted the asymmetric corridor around the MPR to +100/-700 from +100/-300 basis points, raised the Cash Reserve Ratio from 32.5 percent to 45.0 per cent, and retain the Liquidity Ratio at 30 per cent.

“It is imperative to break the cycle of inflation as a prerequisite for sustained economic growth and to stabilise the exchange rate, following the Naira’s sharp depreciation in recent months,” said Aloysius Uche Ordu, a member of the MPC.

Kalu Aja, personal finance expert, said, on X, formerly Twitter, “We need stable Naira”. What is stability? Stability is supply. You are simply saying you want “six” not “half a dozen” Stability occurs when there is a supply to match demand narrowing the spread. So please stop saying “we want a stable Naira” as if it’s some strategy.”