The naira exhibited signs of moderate stability as foreign exchange (FX) turnover on the Nigerian Autonomous Foreign Exchange Market (NAFEM) surged by 138.67%. On Tuesday, 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 indicated a momentary stabilization in the exchange rate, offering some reassurance to market participants.
Surge in FX Turnover
A notable aspect of recent forex market activity has been significant fluctuations in forex turnover. On June 10, 2024, forex turnover was recorded at $161.69 million, reflecting a substantial decline of 39.95% from the previous day. This sharp decrease might have raised concerns about liquidity constraints or market sentiment shifts.
However, contrary to this trend, June 11, 2024, witnessed a significant surge in forex turnover, which soared to $385.91 million. This increase of 138.67% suggests a rebound in market activity and possibly renewed confidence among market participants. Factors contributing to this surge could range from policy interventions to shifts in market sentiment or broader economic developments influencing trading volumes.
Trading Range
The naira displayed moderate stability, trading within a relatively 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 as turnover volumes experienced significant volatility. Such stability is crucial for market confidence and economic planning, reducing the unpredictability associated with exchange rate movements.
Context and Implications
Despite these positive indicators, the Nigerian economy still faces considerable hurdles. Inflation remains high, and external economic pressures, including 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, helping to mitigate volatility and foster a more stable economic environment.
Earlier, Afrexim Bank announced the disbursement of $925 million, another tranche of the $3.3 billion crude oil-backed loan agreement with the NNPC. This disbursement brings the total payment for the facility to $3.175 billion, raised from crude oil off-takers like Oando Group and Sahara Energy.
Following the unification of the FX market in June 2023 and the subsequent depreciation of the naira, the federal government, through the NNPC, secured the $3.3 billion crude oil-backed loan facility from Afrexim Bank. The National Economic Council (NEC) had expressed confidence that the loan would help stabilize the forex market amidst severe volatility.
On the fiscal side, President Bola Ahmed Tinubu plans to discontinue 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 and their agencies prioritize the procurement of Made in Nigeria goods and services.
Fitch Ratings recently noted that ongoing FX reforms are necessary to boost foreign direct investment (FDI) and foreign portfolio investment (FPI). According to Gaimin Nonyane, Director of Sovereigns at Fitch, Nigeria’s current account will be strengthened by increasing oil refining capacity, but the reforms are still crucial in attracting foreign investments.
