The naira has seen significant appreciation in the official market, driven by the Central Bank of Nigeria’s (CBN) interventions and the anticipation of a $1.3 billion non-deliverable forward (NDF) maturing on Wednesday, May 29, 2024.
Recent Developments
On Monday, the naira appreciated by 10.71%, closing at N1,339.33/$1 on the Nigerian Autonomous Foreign Exchange Market (NAFEM) window. This marked the highest closing rate since April 26 and the largest appreciation rate since May 20, when it recorded a 12.84% increase. However, the foreign exchange (FX) turnover sharply decreased by 67.50% to $180.8 million that day.
By Tuesday, FX turnover surged by 81.59% to $328.32 million as the CBN increased its forex sales. The naira further appreciated N1,173.88/$1, marking a 14.09% increase from the previous day’s rate, the highest one-day increase since January 2024.
CBN’s Strategy
Sources reveal that the CBN has resumed selling foreign currency below market rates to lower the exchange rate artificially. This strategy is linked to the maturing $1.3 billion NDF, which comprises about 82% of the total open NDF contracts of $1.58 billion as of May 24, 2024. This move is intended to lower the reference rate and reduce payout.
Expert Insights
Egie Akpata, Chairman of Skymark Partners Limited, confirmed that the significant appreciation was due to the CBN’s dollar sales on Monday and Tuesday. He suggested that continued dollar sales could sustain the naira’s appreciation.
Damilola Alonge, a Private Wealth Advisor, detailed the CBN’s interventions at the NAFEM on Tuesday, where $3 million and $2 million were sold in two rounds of intervention. Successful bids ranged between N1260 and N1320 for the first round and N1160 and N1250 for the second round. On Monday, the CBN intervened with $2 million sold in two tranches, with rates between N1,380 and N1,400 and N1,310 and N1,370, totalling approximately $80 million to $97 million. However, sources estimated the total intervention to be around $200 million.
Despite these interventions, the parallel market has not seen much impact, with the naira still trading at about N1,400.
Context and Future Outlook
Last month, CBN Governor Yemi Cardoso stated that the bank has no intention of defending the naira with external reserves, adhering to a willing buyer, willing seller policy. However, the CBN appears to continue intervening in the official market to stabilize the currency.
Key Points
- Significant Appreciation: The naira appreciated by 10.71% on Monday and 14.09% on Tuesday in the official market.
- CBN Interventions: The CBN has been selling dollars below market rates to manage the exchange rate, which is linked to the maturing $1.3 billion NDF.
- Expert Insights: The CBN’s continued dollar sales could sustain the naira’s appreciation, although the parallel market remains relatively unaffected.
- Policy Stance: Despite previous statements about not defending the naira, the CBN continues intervening in the official market to stabilize the currency.
