Naira Rallies Across Markets, Trades Below N900/$1 At P2P

For the first time since August 2023, the exchange rate dipped below the N900 to $1 mark on peer-to-peer (P2P) platforms, including Binance, indicating a robust turnaround for the Naira. Data from the acclaimed Binance Crypto trading platform showed the exchange rate at an impressive N855 to $1. This development highlights the naira’s impressive recovery trajectory. The black market, often regarded as an unofficial gauge of the currency’s vigour – has listed exchange rates ranging from N1000 to N1,100 for $1 in cash transactions. Several black market dealers shared the sentiment that the naira’s rally might be linked to the recent influx of positive news reports, notably those highlighting the government’s progress in clearing forex backlogs. A black market operator, requesting anonymity, mentioned that the market may be transitioning from ‘panic buying’ to ‘panic selling,’ a stark reversal of the previous trend. On the official front, the Nigerian Autonomous Foreign Exchange Market (NAFEM) witnessed the Naira closing at an encouraging N776.14, marking its strongest finish since October 13th of the current year, a notable improvement from the preceding day’s close of N793.2. The breakthrough below the N900 threshold on the p2p market is being celebrated as a considerable psychological triumph by Nigerian government officials and their surrogates on social media. The Naira commenced the week trading at N1,110 last week Monday, experienced a slight dip to N1,180 on Tuesday, and then exhibited a positive trend on Wednesday and Thursday, closing at N1,175 and N1,125, respectively. The most astounding surge occurred last Friday, with the Naira selling at N950/$. Naira rebound may not be unconnected with augmented foreign exchange inflows, deft policy interventions by the Central Bank of Nigeria (CBN), and stringent measures against illegal financial activities. It would be recalled that the CBN focused on Tier 2 Nigerian banks and international banks with over 75 to 80 per cent of the foreign exchange forward contracts obligations cleared. Findings show that Citigroup ($72 million), Stanbic ($125 million), and Standard Chartered ($63 million) are among the companies that are receiving forex futures deliveries last week The FG also stated that it expected to spend $10 billion to settle FX obligations, support the country’s FX market, and stabilize the naira. Minister of Finance Wale Edun, said that forex liquidity will improve in the coming weeks. He further highlighted that discussions with sovereign wealth funds willing to invest and provide advances along with investments are in advance phases. A US multinational financial services firm, JP Morgan, on Wednesday projected that the naira would trade at N850/$ at the Investors’ and Exporters’ forex window before the end of 2023. However, the US bank said the recent efforts to restore a flexible forex regime may be sustained given the willingness to accompany it with tighter monetary conditions.

Naira Weakens Despite CBN’s Intervention

Since the unification of all the official foreign exchange (FX) windows, the Naira has continued to depreciate against the US dollar, down by 39.6 per cent to N765.83/$ as of 11 October 2023 from N462.88/$ at the I&E Window. Based on the half-year financial markets report of the Central Bank of Nigeria, it has maintained its intervention in the foreign exchange market in an attempt to alleviate demand pressures and ensure exchange rate stability. A total of $6,439.33 million was sold at the foreign exchange market made up of spot sales of $1,557.47 million and forward sales of $4,881.86 million. The spot sales comprised $612.41 million sold at the inter-bank Secondary Market Intervention Sales (SMIS) window, $455.31 million sold to Small and Medium Enterprises (SMEs), $441.75 million for Invisibles, and $48.00 million sold at the I&E window while the bank purchased a total of $655.53 million in the FX market. However, the shocks of the policy have been more pronounced at the parallel market leading to a steep depreciation of the Naira to N1020/US$ on 10 October 2023. With little control over the depreciation of the nation’s currency, the then acting governor of the Central Bank of Nigeria (CBN), Mr. Fola Shonubi, announced plans to put in place new policies that would guide the dealings of FX to boost supply in the market. Apparently, the measures put in place have not been effective as demand for FX continues to rise amidst an acute shortage of supply. “We have always argued that while we believe the unification of the various FX rates is a pro-market policy that will be positive for the economy in the long term, the short to medium-term impact will be hard too hard on the average consumer. “A focus on rate convergence without structural reforms to increase the supply of FX will be a case of treating the symptoms while ignoring the underlying cause of the problem which is an acute shortage of supply amidst a growing demand for FX. Meanwhile, while crude oil sales and Foreign Portfolio Investments (FPIs) are two major sources of FX that have declined significantly, Oil production remains depressed, reported at 1.57 mbpd in September (highest so far this year) and are yet to see any significant foreign capital inflows. According to the Nigerian National Petroleum Company Limited (NNPCL), between September 30 and October 6, 128 crude oil theft incidents were recorded across the oil-producing areas of the Niger Delta. In the specific timeframe mentioned, there were numerous illicit activities in the oil sector. These included 17 cases of unauthorized connections, 27 illegal refineries, 11 infractions related to vessel tracking systems (AIS), and 49 instances of wooden boat arrests.