Nigeria: CBN’s Actions Boost Naira’s Performance Against US Dollar

The Nigerian naira has shown resilience against the US dollar in various forex markets, buoyed by efforts from the Central Bank of Nigeria (CBN) to bolster the country’s currency. Despite facing challenges earlier in 2024 with an initial devaluation aimed at aligning official and parallel market rates, the naira has demonstrated notable strength.

On the official spot market, the naira was quoted at N1431.40 per US dollar on the FMDQ Securities Exchange as of Friday, while the parallel market saw rates settling below N1400, based on recent channel checks.

Earlier in the year, currency manipulations led to distortions in the market, with the US dollar reaching values as high as N1900 in unofficial markets as FX whales sought to profit from wider spreads between official and parallel rates.

In response, the CBN has taken decisive measures to curb speculative activities, particularly in the parallel market. By tightening regulations across the banking sector, bureau de change operators, and informal economies facilitated by platforms like peer-to-peer Binance cryptocurrency trading, the CBN aims to stabilize the naira.

Additionally, the central bank has increased yields on naira-denominated assets to attract both domestic and international investors while curbing currency speculation.

Recent announcements from the CBN indicate successful resolution of FX backlogs, with the authority clearing all valid foreign exchange backlogs. Following this resolution, USD4.60 billion of the initial USD7.00 billion backlog was deemed valid and settled.

The decision to resume US dollar sales to bureau de change operators in February 2024 has also contributed to the naira’s positive trend against the US dollar. Retail sales of US dollars to banks have resumed in the range of N1,300–N1,400.

These developments have spurred increased participation from Foreign Portfolio Investors (FPIs) in the foreign exchange market, boosting investor confidence. Nigeria’s gross external reserves have surged by 4.16% to reach an eight-month high of USD34.38 billion, driven by inflows from foreign investors and higher remittances, according to data from the CBN.

Analysts from Broadstreet highlight the stability of the naira in recent weeks, attributing it to ongoing reforms and improved forex liquidity. They anticipate continued CBN interventions to maintain naira stability, even with the settlement of the foreign exchange backlog.