The exchange rate between the Nigerian naira and the US dollar has continued its upward trajectory for the third consecutive day, reaching N1,534.9/$1 on the official market. This marks a significant strengthening of the naira, hitting its highest level in seven days.
The official NAFEX rate, serving as the average and benchmark rate used by the Central Bank of Nigeria (CBN), stood at N1,567.65 on March 1st, 2024.
Throughout the trading day, the exchange rate fluctuated, reaching an intra-day high of N1,600/$1 and a low of N1,425/$1. Despite this volatility, the official exchange rate has consistently remained below N1,600 since February 28th, indicating a gradual return to stability in the official market.
The recent gains in the value of the naira can be attributed to several factors. Firstly, the exchange rate has not exceeded N1,600/$1 since February 28th, providing reassurance to policymakers. Additionally, the Central Bank of Nigeria (CBN) has implemented various measures to combat inflation, including raising the benchmark monetary policy rate to 22.75%, selling over N3 trillion in Treasury Bills and Open Market Operations (OMO) bills combined, and introducing new guidelines for Bureau de Change (BDC) operations.
Furthermore, the CBN has intensified its efforts to regulate the foreign exchange market by selling forex to BDC operators and banning over 4,000 operators for non-compliance. Governor Yemi Cardoso has also engaged in advocacy efforts with foreign portfolio investors to attract hot money inflows. Additionally, the CBN’s collaboration with security agencies to clamp down on cryptocurrency trading platforms like Binance has contributed to market stability.
While the exact impact of these measures on the exchange rate is uncertain, analysts suggest that a market equilibrium may be emerging. Forex turnover in the last three days has seen improvement, averaging $250 million per day, compared to $160 million per day a week earlier.
Despite these positive developments in the official market, the exchange rate on the parallel market remains around N1,600/$1, indicating continued demand. However, this marks a significant improvement from the record low of N1,880 recorded on February 22nd.
The recent strengthening of the naira on the official market reflects ongoing efforts by the CBN to stabilize the foreign exchange market and combat inflation, although challenges persist in the parallel market.
