Nigeria: Naira Rebounds Slightly as CBN Injects $66 Million into Banks

The Nigerian naira made a modest recovery in the foreign exchange market after weeks of downward pressure. On Friday, the naira appreciated by 36 basis points, closing at N1,509.70 per dollar at the Nigerian Foreign Exchange Market (NFEM), according to data from the FMDQ platform.

CBN’s Intervention Boosts Liquidity

Analysts attributed the slight rebound to improved liquidity following the Central Bank of Nigeria’s (CBN) intervention in the FMDQ window. The apex bank sold $66.45 million to authorized dealer banks to boost dollar supply amid increasing demand pressures.

At the official window, FX transactions fluctuated between N1,480.00/$ and N1,522.00/$, reflecting the volatile nature of the market. The naira experienced a brief recovery after losing ground in the previous eight trading sessions against the US dollar.

Declining Foreign Reserves Weigh on the Market

Despite the CBN’s intervention, Nigeria’s foreign reserves continue to dwindle due to the settlement of external obligations. The country’s gross external reserves declined by $307.19 million in a week, bringing the total to $39.10 billion.

FX Forward Contracts Reflect Market Uncertainty

In the forwards market, naira rates weakened across various tenors, indicating ongoing uncertainty:

• 1-month forward contract declined by 0.3% to N1,554.01/$.
• 3-month forward contract fell 0.6% to N1,633.36/$.
• 6-month forward contract dropped 1.0% to N1,749.31/$.
• 1-year forward contract depreciated 1.1% to N1,948.97/$.

Parallel Market Gains and Narrowing Exchange Rate Spread

In the parallel market, the naira gained N5, settling at N1,555/$. As a result, the spread between the official and parallel market rates narrowed to 3.33%, down from 4.22% the previous week, according to TrustBanc Financial Group Limited.

Outlook: Naira Stability Hinges on Market Liquidity

Analysts predict that FX market liquidity will remain robust, driven by inflows from foreign portfolio investors (FPIs) and attractive carry trade opportunities. However, global economic uncertainties, such as US trade tariffs, pose potential risks to the exchange rate.

“We anticipate that the CBN will continue its interventions, particularly during periods of liquidity shortages. As a result, we expect the naira to hold steady in the short term,” Cordros Capital Limited stated in a market analysis.