The naira displayed moderate stability as foreign exchange (FX) turnover on the Nigerian Autonomous Foreign Exchange Market (NAFEM) window surged 138.67%. On Tuesday, June 11, 2024, the naira closed at 1,473.66/$1, appreciating by 0.68% from the previous day’s rate of 1,483.62/$1. This slight appreciation indicates a momentary stabilization in the exchange rate, offering some reassurance to market participants.
Gradual Improvement in Exchange Rates
The improvement in closing rates over these two days suggests a potential stabilizing trend in the foreign exchange market. This gradual stabilization is a positive sign for those monitoring the market closely.
Surge in FX Turnover
A significant aspect of recent forex market activity has been the notable fluctuations in forex turnover. On June 10, 2024, forex turnover was recorded at $161.69 million, reflecting a substantial decline of 39.95%. This sharp decrease might have raised concerns about liquidity constraints or shifts in market sentiment, indicating possible underlying uncertainties.
However, on June 11, 2024, forex turnover surged to $385.91 million, marking an increase of 138.67%. This surge suggests a rebound in market activity and possibly renewed confidence among market participants. Factors contributing to this increase could include policy interventions, shifts in market sentiment, or broader economic developments.
Trading Range
The naira demonstrated further stability as it traded within a narrow range, with a high of N1,495/$1 and a low of N1,415/$1, staying below previous highs of over N1,500/$1. This trading range indicates resilience and stability in the naira’s exchange rate, even amid significant turnover volatility. Such stability is crucial for market confidence and economic planning, as it reduces unpredictability in exchange rate movements.
Key Points
Despite these positive indicators, the Nigerian economy still faces considerable challenges. Inflation remains high, and external economic pressures, such as fluctuating oil prices and global market uncertainties, continue to pose risks. Ensuring a consistent supply of foreign exchange to meet market demand will require ongoing efforts and strategic interventions.
The Central Bank of Nigeria (CBN) recently announced that International Oil Companies (IOCs) can sell 50% of their repatriated export proceeds to authorized forex dealers. This directive aims to boost forex liquidity, mitigate volatility, and foster a more stable economic environment.
Additionally, Afrexim Bank recently announced the disbursement of $925 million, part of a $3.3 billion crude oil-backed loan agreement with the NNPC. This disbursement brings the total payment for the facility to $3.175 billion, sourced from crude oil off-takers like Oando Group and Sahara Energy.
Government Measures
Following the unification of the FX market in June 2023 and the subsequent naira depreciation, the federal government, through the NNPC, secured the $3.3 billion loan facility from Afrexim Bank. The National Economic Council (NEC) had expressed confidence that this loan would help stabilize the forex market amid severe volatility.
On the fiscal side, President Bola Ahmed Tinubu plans to stop the payment of taxes and levies in foreign currency through an executive order. To reduce pressure on the naira, the order also mandates that all levels of government prioritize the procurement of Made in Nigeria goods and services.
Fitch Ratings recently noted that ongoing FX reforms are essential to boosting foreign direct investment (FDI) and foreign portfolio investment (FPI). Gaimin Nonyane, Director of Sovereigns at Fitch, stated that increasing oil refining capacity will strengthen Nigeria’s current account (CA), but the reforms are still crucial for attracting foreign investments.
