Foreign exchange (forex) transactions at the Nigerian Autonomous Foreign Exchange Market (NAFEM) window rose by 276.1 per cent to $1.7 billion in the last one week.
NAFEM is the singular formal market trading segment for investors, exporters and end-users. With the abolition of multiple exchange rates by the Central Bank of Nigeria (CBN), forex trades are made at exchange rates determined by prevailing market circumstances, thus ensuring efficient and effective price discovery in the Nigerian forex market.
In a report at the weekend, Afrinvest West Africa, reported increased activities at the forex window. However, naira exchange rates differed across the formal and parallel markets.
According to the report, although the naira lost 2.4 per cent against the dollar to settle at N1,169.99 at the NAFEM official window, it appreciated by 7.4 per cent to close at N1,145 to dollar week-on-week at the parallel market.
Analysts expected sustained naira appreciation as CBN keeps short-term remedies to strengthen the local currency.
“In the currency market, activity level in the NAFEM window soared to 276.1 per cent week on week to $1.7 billion while the naira lost 2.4 per cent against the dollar to settle at N1,169.99 to dollar.
Meanwhile at the parallel market, the naira closed at N1,145 to dollar indicating 7.4 per cent appreciation, week-on-week,” report stated.
The local currency had of recent commenced rapid recovery, as volatility in the market dropped after the apex bank commenced dollar sales to bureau de change operators.
Legitimate needs driving forex demand include Form A applications for Business Travel Allowance (BTA), Personal Travel Allowance (PTA), school fees, and medical fees. Small and Medium Enterprises (SMEs) are also grappling with the scarcity, as highlighted by the use of Form Q.
Managing Director Financial Derivatives Company Limited Bismarck Rewane said that cost pressures were likely to ease due to naira’s rebound.
Rewane said the naira had since February appreciated significantly across the markets, fueled by sanitisation of the forex market, an increase in forex supply and a fall in the demand for dollars.
The settlement of the $7 billion verified forex backlog of forward commitments have boosted confidence and improved the credibility of the CBN .
“However, the pressing question remains, will the naira tumble again? The answer is No, if Nigeria continues to do the right things. Prospects for forex earnings are promising, with foreign portfolio investments on the rise. Nigeria’s key export commodities have also seen significant price surges, with cocoa trading at a record high of over $10,000 per tonne in the global market and oil prices exceeding $85pb as oil production reached an impressive 1.48mbpd in February 2024,” Rewane stated.
Naira’s appreciation, he further stated, followed the Monetary Policy Committee (MPC) meeting on February 26 and 27, during which interest rates was increased sharply by 400 basis points (bps) to 22.75 per cent per annum.
The MPC also met on March 24 and 25, agreeing to hike interest rates by 200bps to 24.75 per cent per annum to keep prices in check.
“These moves, combined with the CBN house-cleaning exercise to mop up excess demand for dollars, signal that the apex bank intends to stay on the path of orthodoxy to positively anchor inflation and stabilize exchange rates. Consequently, though slowly, the naira is expected to sustain appreciation,” Rewane said.
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