The value of the Nigerian naira saw a significant boost on the black market over the weekend, thanks to the growing optimism of increased foreign exchange inflows in Africa’s largest economy. This positive sentiment was fueled by promises from the Nigerian Federal Government to support dollar liquidity in the foreign exchange market, thereby strengthening the local currency.
Street traders were seen purchasing dollars at a rate of N901 per dollar during the weekend, a notable improvement compared to N1,050 on the previous Friday.
However, on the peer-to-peer (P2P) market, the naira lost some ground, trading at around N980 per dollar in the early hours of Monday.
Local exchange bureau operators believe that the recovery and stability of the naira against the dollar can be supported by injecting liquidity into the retail sector of the foreign exchange market. Aminu Gwadabe, Chairman of the Association of Nigerian Foreign Exchange Bureaus (ABCON), emphasized the need for the Nigerian government to maintain a steady flow of dollars into the market to counter the influence of speculators.
The Central Bank of Nigeria (CBN) has been taking measures to bolster the naira’s value. The CBN recently initiated the clearing of approximately $7 billion in backlog of foreign exchange futures contracts, providing relief to the naira and the country’s economy. The naira is expected to adjust as market rules for participants become clearer.
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The CBN’s settlement of outstanding FX futures contracts with several banks, including Citigroup, Standard Chartered, and Stanbic IBTC, is part of the effort to strengthen the naira. Local banks are also expected to receive similar settlements. These initiatives are aimed at securing new capital flows of around $10 billion to address the country’s foreign exchange backlogs.
Nigeria’s Finance Minister, Wale Edun, announced that the country expects foreign exchange inflows of $10 billion in the coming weeks to enhance liquidity in the foreign exchange market. These inflows will come from the issuance of dollar instruments, oil sales, and foreign investments.
Furthermore, the naira faces fewer external shocks as the US Federal Reserve recently decided to maintain its key interest rate band, which has been at a high level for most of 2022. This move is in response to concerns about persistent inflation and growing uncertainty about US consumer spending, especially as student loan payments resume after pandemic-related suspensions.
The combination of government initiatives, CBN efforts, and favorable global economic conditions presents a promising outlook for the Nigerian naira, instilling hope for a more stable and stronger currency in the country.
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