Drop in foreign reserves continues to $32.29 billion.
On Tuesday, the black market saw the naira reach a seven-month high of 1,000 US dollars per US dollar. This is an amazing turnaround for a currency that was only two months ago expected to reach 2,000 US dollars per dollar.
On Tuesday, traders noted a rise in the supply of dollars and stated they anticipated more strengthening of the currency in the days ahead.
According to analysts, the rate at which the Central Bank of Nigeria (CBN) sells dollars to Bureau de Change (BDC) operators during an auction this week may provide hints about the short-term direction of the naira.
The BDC operators' exchange rate was reviewed by the CBN last Monday, and it was changed from N1,251/$ to N1,101/$.
Each BDC receives $10,000 from the apex bank each week, but they are only allowed to sell at a 1.5 percent spread, or N1,117 per US dollar.
Since the apex bank started selling to the BDCs again in February, the rate they sell has effectively established a floor for the value of the naira on the black market.
Following prior forecasts by a Goldman Sachs economist that the naira will probably trade for less than N1,000/$ in the upcoming months, the naira has continued to rise.
The naira continued its upward trend on the Nigerian Autonomous Foreign Exchange Market (NAFEM), the official window, closing at 1,136.04/$ on Monday as opposed to 1,142.38/$1 on Friday.
Last week, analysts at Renaissance wrote to clients According to Capital Africa, a rating agency projects portfolio inflows of $5–10 billion by 2024.
Since the apex bank started selling to the BDCs again in February, the rate they sell has effectively established a floor for the value of the naira on the black market.
Following prior forecasts by a Goldman Sachs economist that the naira will probably trade for less than N1,000/$ in the upcoming months, the naira has continued to rise.
The naira continued its upward trend on the Nigerian Autonomous Foreign Exchange Market (NAFEM), the official window, closing at 1,136.04/$ on Monday as opposed to 1,142.38/$1 on Friday.
Last week, analysts at Renaissance wrote to clients According to Capital Africa, a rating agency projects portfolio inflows of $5–10 billion by 2024.
The naira has showed some improvement following a period of extreme volatility and a notable depreciation since late June. The central bank governor's initiatives, including increasing interest rates to 24.75 percent and overseeing foreign exchange transactions, are to blame for this stabilization.
March saw a five-year high for foreign exchange inflows into Nigeria as investor confidence increased as a result of the central bank's reforms.
Data from the FMDQ website shows that total inflows into the NAFEM rose to $3.75 billion in February from $2.64 billion in February, the highest amount since March 2019 ($6.07 billion). This is a 41.7 percent increase.
March saw a five-year high for foreign exchange inflows into Nigeria as investor confidence increased as a result of the central bank's reforms.
Data from the FMDQ website shows that total inflows into the NAFEM rose to $3.75 billion in February from $2.64 billion in February, the highest amount since March 2019 ($6.07 billion). This is a 41.7 percent increase.
Along with sales at the official market, the CBN has increased its involvement in the foreign exchange market by selling dollars to BDC operators who hawk them on the streets.
Gains in Naira have a price.
There has been a price for the interventions. The CBN is consuming foreign exchange reserves at a rate that hasn't been seen in four years, which has people worried that it could eventually run out of dollars to maintain the naira.
According to the most recent available statistics from the CBN, the nation's foreign reserves fell 6.2% since March 18, when the naira began its recovery from record-low levels against the dollar, to $31.29 billion as of Monday.
According to it, this is the largest drop in a comparable time frame since April 2020 based on Bloomberg.
Gains in Naira have a price.
There has been a price for the interventions. The CBN is consuming foreign exchange reserves at a rate that hasn't been seen in four years, which has people worried that it could eventually run out of dollars to maintain the naira.
According to the most recent available statistics from the CBN, the nation's foreign reserves fell 6.2% since March 18, when the naira began its recovery from record-low levels against the dollar, to $31.29 billion as of Monday.
According to it, this is the largest drop in a comparable time frame since April 2020 based on Bloomberg.
The International Monetary Fund estimates that Nigeria has gross reserves of approximately $32.6 billion, or enough to cover its imports for roughly six months.
The nation's foreign exchange reserves remain substantial due to the increase in oil prices and the inflow of funds from multilateral loans.
The CBN announced last month that it had cleared $7 billion in backlogs since the year's commencement. That was developed over time as a result of the central bank's currency peg to the US dollar, which made foreign exchange scarce and discouraged foreign portfolio investment. How much dollar debt the CBN has on its books is unknown, though.
Professor of public policy and economics Akpan Ekpo stated that the CBN's managed float mechanism, whereby It is attempting to guarantee that reducing demand and supply is not a long-term viable strategy.
He stated that since oil revenue is the CBN's primary source of income, it must exercise caution in how it uses up foreign reserves.
"Instead of relying on oil revenue, we must produce non-oil goods and services, export them, and earn foreign exchange," he stated.
The head of macro strategy at FIM Partners, Charles Robertson, told Bloomberg that the CBN is attempting to draw in international investors by preserving the naira. Robertson is headquartered in London.
He stated, "It looks like the CBN is using its foreign exchange reserves to clear the legitimate backlog and bring the naira back to a realistic exchange rate." "I assume they want to restore private sector liquidity to the foreign exchange market and inspire other investors, both domestic and foreign, to start investing in the local currency."
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