Naira Makes Modest Gains Against The Dollar

In a slight upturn at the Nigerian Autonomous Foreign Exchange Market, the naira appreciated against the United States dollar, closing at ₦1,498.25/$ on Thursday, up from ₦1,503.38/$ the day before.

This improvement comes amidst the Central Bank of Nigeria‘s (CBN) intensified efforts to clamp down on foreign exchange racketeers and financial malpractices, as evidenced by a series of circulars issued on February 14, 2024.

The CBN has issued three pivotal circulars aimed at curbing the exploitation of the foreign exchange market.

The first directive prohibits banks from disbursing Personal Travel Allowance in cash to customers.

In a further move to tighten controls, the second circular restricts International Oil Companies from repatriating their entire revenue to parent companies in one go.

Additionally, the third circular revises guidelines to prevent under-invoicing of exports and over-invoicing of imports, a step towards ensuring a more transparent and fair trading environment.

Despite these measures, the naira closed near the critical 1,500/dollar threshold in the official market on Thursday, following a reduction in dollar supply by commercial banks at the spot FX market.

According to FMDQ Exchange securities data, there was a notable decrease in supply from $381.92m on Tuesday to $117.87m on Wednesday, after a significant increase from $89.61m on Monday.

The week saw the naira’s value fluctuating, starting at an all-time low of ₦1,534/$ on Monday, indicating potential repercussions for the costs of goods and services.

However, it saw a marginal recovery to ₦1,498/$ by Thursday, despite the challenges in the foreign exchange market.

On the parallel market, the naira experienced a depreciation, trading at ₦1,600/$ on Thursday, which is significantly higher than the rate at the start of the week, pointing to a 6.45 percent increase.

Despite the Central Bank’s efforts to stabilize the currency, Nigerians continue to resort to the black market, exacerbating the speculation problem.

Financial analysts had predicted a challenging year for the naira, with Cowry Asset Management Limited’s Group Managing Director, Johnson Chukwu, forecasting a depreciation to ₦1,500/$ in 2024.

Bureau De Change operators in major cities confirmed the strain on the naira, with rates closing higher at ₦1,600 to ₦1,610/$, reflecting the prevailing uncertainty and high demand.

A report by Comercio Partners highlighted the naira’s 66 percent plunge in the official exchange rate throughout 2023, from 462 Naira per US dollar to 1041 Naira per US dollar, alongside a significant disparity between the official and parallel market rates.

The persistent foreign exchange shortages pose a considerable challenge to the CBN’s exchange rate liberalization efforts, signaling a complex economic landscape ahead.