On Monday, the naira experienced a significant appreciation against the dollar, closing at N1,339.33/$1 on the Nigerian Autonomous Foreign Exchange Market (NAFEM) window, marking a 10.71% gain. According to FMDQ data, this is the highest closing rate since April 26, when the exchange rate was N1,339.23/$1. This also represents the largest currency appreciation in two months, following a 12.84% increase on May 20.
Low Demand Drives Higher Value
On Friday, May 24, 2024, the exchange rate stood at N1,482.81/$1 with a slight increase of 0.19%. This marginal appreciation came after a four-day winning streak for the naira. The FX turnover on Friday was notably high at $556.25 million, reflecting a 231.99% increase. This surge in FX turnover was likely due to the Central Bank of Nigeria’s (CBN) aggressive liquidity management strategy, which involved raising N1.16 trillion through the OMO bill auction. This move aimed to control inflation and stabilize the naira amid ongoing economic challenges.
However, on Monday, FX turnover sharply decreased by 67.50%, amounting to $180.8 million. The significant drop in FX turnover indicates lower demand for dollars, contributing to the naira’s appreciation. With fewer dollars being purchased, the demand decreases, leading to a stronger naira against the dollar.
Key Points to Note
Nigeria’s foreign exchange (FX) reserves have significantly increased over the past month, rising by approximately $630.1 million as of May 23, 2024. The latest data from the CBN shows a steady upward trend in reserves, demonstrating the country’s resilience in maintaining financial stability despite challenging economic conditions.
The Monetary Policy Committee (MPC) recently urged the CBN to boost external reserves. In a statement from its 295th meeting, the committee highlighted the marginal increase in reserves between March and April 2024 and encouraged the CBN to continue this trend. Additionally, the CBN plans to double the diaspora remittance inflow this year to ensure a steady flow of foreign exchange into the country.
While the apex bank is committed to increasing reserves following a severe decline, the FX reserves continue to rise amid volatility in the official market, which still faces an unstable supply of dollars.
