Nairametrics reported on Friday that the Nigerian naira continues to maintain its impressive momentum, defying the recent aggressive gains of the dollar.
Despite the dollar’s surge, concerns about persistent inflation persist, reinforcing the belief that the Federal Reserve will delay raising interest rates this year. This sentiment has led to a positive trajectory for the naira, with the currency reaching a four-month high of N1,120 per dollar on the black market.
“Price action shows the pathway for the bulls seems clear, as the naira broke a key resistance level of N1200 against the greenback, especially when the dollar is strengthening amid strong U.S economic data as recent fundamentals show the local currency is set to test the N1000 mark,” said Nairametrics.
The turning point for the naira’s fortunes came with the Central Bank of Nigeria’s (CBN) clearance of the FX backlog of requests estimated to be worth $7 billion. This move, coupled with a series of foreign exchange reforms, has unlocked dollar liquidity in Nigeria’s money market, driving increased activity.
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Goldman Sachs noted that rate increases in Nigeria and improved capital inflows indicate a “turning point” for the naira. Furthermore, the CBN’s recent policies, including forbidding the use of dollar collateral for naira loans and offering to sell dollars to Bureaux de Change at more market-reflective rates, have contributed to the naira’s stability.
“The naira’s present level was already the highest the currency has traded since mid-last year at the unofficial market on the eve of a second round of devaluation that cut more than half from the naira’s value against the dollar since President Bola Tinubu eased foreign exchange controls in June,” Nairametrics highlighted.
Total inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) surged by 41.7% to $3.75 billion in April, the highest amount since March 2019. The CBN also evaluated the exchange rate for operators, bringing it down from N1,251/$1 to N1,101 per dollar.
Nigeria’s central bank has taken decisive steps to combat rising inflation, raising the benchmark interest rate by 600 basis points to 24.75% since February. The stability in the naira has been further supported by the CBN’s robust attitude, including crackdowns on the unofficial market and virtual service providers amplifying the naira’s weakening by driving demand for the dollar pegged USDT coin.