Naira appreciated across foreign exchange (forex) markets in a steady recovery after a bouquet of initiatives by the Central Bank of Nigeria (CBN) to stem speculative trading and volatility.
Trading data at the weekend showed that the naira appreciated by 1.5 per cent to N1,602.75 per dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM). At the parallel market, the naira gained 31 basis points to close at N1,595 per dollar.
Total turnover at NAFEM dropped by 41.6 per cent to $743.54 million, with trades consummated within the range of N1,425.35 to N1,650 per dollar.
Analysts were unanimous the naira has more upside potential and could sustain its stability while gathering momentum towards a major break in the second half.
Experts agreed that the steady recovery was due to policy directives of the apex bank.
“These efforts are beginning to manifest positive outcomes, as evidenced by the decreased naira volatility observed in the foreign exchange market,” Cordros Capital Group stated at the weekend.
Cordros Capital outlined that many initiatives by the CBN aimed at stabilising the naira, including addressing forex backlogs, increasing domestic interest rates to make naira-denominated assets attractive, and supplying dollars to bureau de change (BDCs), were behind the stability and recovery seen by the national currency.
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“Although the apex bank has yet to fully clear the forex backlogs due to persistently low forex supply, we hold the view that the volatility of the naira will remain subdued in the short term. This expectation is underpinned by reduced currency speculation supported by the CBN’s ongoing monetary tightening measures and improved liquidity resulting from the uptick in forex inflows from foreign portfolio investors (FPIs),” Cordros Capital stated.
Afrinvest (West Africa) stated that it expected the positive trajectory of the naira to continue in the days ahead, barring any unforeseen development.
According to Afrinvest, rates across forex markets are expected “to follow a similar trend barring any new developments”.
Bismarck Rewane’s Financial Derivatives Company (FDC) said the naira has “less downside risk than upside potential”.
According to FDC, contrary to skepticism earlier in the year that the naira could plunge to N,3000 per dollar, the national currency could maintain its current range and build up its recovery in the second half.
“Our view is that the naira is bottoming out. It has less downside risk than upside potential. Just like the economy, a U-curve recovery is more likely than a V-curve-quick fix. Our model suggests the naira will trade in the parallel market at the N1,500 per dollar to N1,650 per dollar range through the months of March and April before a gradual and slow recovery,” FDC stated.
Former Executive Director, Keystone Bank Limited, Richard Obire advised that Nigeria’s heavy and skewed outward-oriented consumption of goods and services as seen in decades of long substantial bills for food and energy imports should be reversed to save the naira.
Also, the massive corruption-driven capital outflows, which in turn severely damages Nigeria’s capacity to produce at scale that will enable the country to fully engage its large population to create widespread prosperity works against the naira.
On ways to strengthen the naira, he advised that in the short-term, there is need to find non-market damaging ways to increase the supply of hard currencies and reducing the demand for same.
He said insecurity hampering food production needs to be tackled with a sense of urgency and effectiveness.
To boost dollar liquidity, the CBN recently directed that all authorised dealers to pay Personal and Business Travel, allowances (PTA/BTA) to their customers through electronic channels only, including debit or credit cards instead of cash.
“In line with the bank’s commitment to ensure transparency and stability in the foreign exchange market and avoid foreign exchange malpractices, All Authorised Dealer Banks shall henceforth effect payout of PTA/BTA through electronic channels only, including debit or credit cards. For the avoidance of doubt, payment of PTA/BTA by cash is no longer permitted,” the bank stated.