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Naira maintains positive outlook amid concerns over decline in reserves



Anxiety lingers over fate of naira as speculators exploit CBN low funding

The naira has continued its bullish momentum across market segments, prompting more positive perception that can further ignite international investor confidence in Africa’s largest but struggling economy, Business Hallmark has observed.

During the week under review, the currency rose to a four-month high of N1,120 per dollar on the black market amid high activity in Nigeria’s money market, driven by a series of foreign exchange (FX) reforms of the Central Bank of Nigeria (CBN) that have unlocked dollar liquidity.

On Friday, the local currency also experienced huge appreciation at the official market, trading at N1,142.38 to the dollar, with data from the official trading platform of the FMDQ Exchange, a platform that oversees the Nigerian Autonomous Foreign Exchange Market, putting the gain at N88.23.

This represents a 7.16 percent gain when compared to the previous trading date on Monday, April 8, exchanging at N1,230.61 to a dollar before the Sallah holiday.

The total daily turnover increased to $281.34 million on Friday up from $125.55 million recorded on Monday, according to the News Agency of Nigeria on Saturday.

In its latest report on Nigeria’s economic realities, Goldman Sachs described naira as the best-performing currency this month (April). According to the report, Goldman Sachs economists said with the appreciation rate of the naira in the foreign exchange market, the currency may exchange below N1,000 per dollar in the coming months.

The report stated that the naira rallied 12 percent against the dollar in April, adding to its 14 percent surge in March.

The American lender had in March forecast that the naira would appreciate to N1,200 per dollar in 2024. The group’s projection became a reality on Monday when the national currency exchanged at N1,230.61 at the official market and N1,200 at the parallel market.

With the CBN intervening by selling FX to Bureau De Change operators at a revised rate of N1,101 per dollar from N1,251, the naira appreciated by N60, trading at N1,140 per dollar at the Parallel Market on Friday.

This is an uncommon feat for a currency ranked third among the world’s worst performing currencies last year. Of the 151 currencies tracked by Bloomberg last year, naira was the world’s worst performer after the Lebanese pound and the Argentine peso, closing at N1,043 per $1, at about 72 hours to the end of 2023.

While financial analysts predicted that the naira may plunge further in 2024, they described the currency’s performance last year as its worst year since the return to democracy in 1999.

But in the past few months, CBN had said the country has witnessed a surge in capital inflows arising from several policy interventions. At its last Monetary Policy Committee, MPC meeting, the CBN raised the benchmark interest rate to 24.75 percent, helping it retrace losses caused by two devaluations since June last year.

There have been also other steps to ease the local scarcity of dollars that fanned volatility and forced companies to the parallel market. Local dollar liquidity has also been boosted after it cleared a backlog of overdue dollar purchase agreements estimated at $7 billion.

The next meeting of the monetary policy committee is on May 21. With inflation running at a yearly rate of 31.7% in February, the central bank will face pressure to raise rates again from current levels of 24.75%.

But Mr. Yemi Cardoso, CBN governor, faces pushback from businesses, with the Manufacturing Association of Nigeria complaining in a statement that rate hikes “reduces access to funds, manufacturing investments and competitiveness.”

A big threat


Nigeria’s crude oil production witnessed the second consecutive monthly decline since the beginning of this year, as it dropped to 1.231 million barrels per day in March, according to the Organisation of Petroleum Exporting Countries (OPEC’s) latest Monthly Oil Market Report for April 2024.

Also, Nigeria’s foreign exchange (FX) reserves experienced a sharp decline of about $1.02 billion within 18 days, as the CBN continues its aggressive defence of the naira. As of April 4, 2024, the FX reserves stood at $33.43 billion, down from $34.45 billion on March 18, 2024, according to the latest data from the CBN.

Before the current decline, the reserves had been steadily growing, witnessing a remarkable 43-day surge between February 5 and March 18, 2024, during, when it appreciated by $1.28bn.

Economic watchers are concerned that the drop in oil production could further affect the country’s foreign exchange reserves and possibly affect the naira’s current appreciation in the foreign exchange market.

“Crude oil exports down, interesting and disappointing. We must face oil squarely. It is still our main revenue source. Agriculture is a medium to long-term. Crude oil and gas exports still contribute highest to our reserve,” a development economist, Kalu Aja, said.

With this development, federal, state, and local allocations are expected to drop, and Nigeria’s foreign exchange reserves could also drop, he said.

“If we want the fiscal side to do well, we must stop the oil theft and improve on our oil revenue resources, improve lending to manufacturing, and ensure a stable exchange rate,” said Dr Muda Yusuf, Chief Executive Officer, Centre for Promotion of Private Enterprises (CPPE).

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