The value of the naira gained strength at the parallel market on Thursday as the three-day public holiday was rounding up, selling around N1,150 to the dollar compared to N1,200 which it sold on Monday this week.
The appreciation of the naira on the streets is being driven by the policies of the Central Bank of Nigeria(CBN) which includes disbursing dollars to Bureau de Change (BDC) operators at the lower band of the previous trading at the Nigeria Autonomous Foreign Exchange Market (NAFEM).
Traders note that the CBN policies coupled with a lower demand for the greenback and the prolonged holiday had seen the appreciation in the value of the naira on Thursday.
The CBN had, on Monday, sold $10,000 to 1,588 eligible BDC Operators at N1,101 to the dollar compared to N1,210 with it sold to them during the previous sales.
At the Nigerian Autonomous Foreign Exchange (NAFEM) window, the naira closed at N1230.61 to the dollar on Monday, a gain from its previous close at N1,251.05 on Friday reflecting a gain of N20.44.
The daily turnover saw a decline reaching $125.55 million yesterday, in contrast to the $248.29 million recorded on Friday, indicating a decline of 49.43 per cent.
At the NAFEM on Monday, the highest spot rate stood at N1,261, with the lowest spot rate recorded at N1,200.
In an effort to manage inflation and stabilise the Naira, the Central Bank of Nigeria (CBN) increased its benchmark interest rate, known as the Monetary Policy Rate (MPR), by 200 basis points to 24.75 percent from 22.75 percent in February 2024.
On June 14, 2023, the CBN implemented significant reforms, including eliminating market segmentation, consolidating all segments into the Investors & Exporters window (now called the Nigerian Autonomous Foreign Exchange), and reintroducing the Willing Buyer, Willing Seller framework.
In August 2023, the CBN resumed Forex sales to Bureau de Change (BDC) operators but imposed restrictions on their buying and selling spread to +/-2.5 percent of the weighted average of transactions executed the previous day on the I&E window.
In January 2024, the apex bank imposed a maximum limit on the Net Open Position (NOP) of banks in Nigeria, setting it at 20 percent short or zero percent long holding of foreign currency assets and liabilities.
Additionally, the CBN directed International Money Transfer Operators (IMTOs) to quote exchange rates for Naira payout to beneficiaries based on prevailing market prices.
In February 2024, the CBN lifted caps on the spread on interbank Forex transactions and removed restrictions on the sales of interbank proceeds.
Furthermore, it mandated that Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) payouts be conducted solely through electronic channels.
According to FSDH Research, these measures have helped reduce volatility in the Naira in the forex markets.
By March 2024, Naira volatility had further decreased following additional CBN reforms aimed at enhancing transparency and inflows into the forex market. On March 28, the NAFEM closing rate was N1309.4, a significant appreciation from its peak of N1,650 on February 26, 2024, as reported by FSDH.
Analysts at FSDH expressed optimism, stating that , “we believe that the recent forex reforms, coupled with high interest rates and improved oil production, will bring stability to the forex market.”