The value of the naira increased significantly on Sunday on the black market due to the high possibility of more foreign exchange inflows in Africa’s largest economy.
The optimistic emotions sparked by FG’s promises to support dollar liquidity in the foreign exchange (FX) market arbitrarily strengthened the local currency.
This positive sentiment led to street traders purchasing dollars at a rate of N901 over the weekend, as opposed to N1,050 on Friday of last week.
P2P Market Contrast
On the P2P market, the naira however lost some ground as it traded at about N980/$ in the early hours of Monday.
However, the naira lost ground in the P2P market as it was trading around N980/$ in the early hours of Monday Operators of domestic exchange bureaus the recovery and stability of the naira versus the dollar at the week’s rate could be supported by injecting liquidity into the retail sector of the foreign exchange market.
Chairman, of the Association of Nigerian Foreign Exchange Bureaus (ABCON), Aminu Gwadabe, said the FG must maintain the flow of dollars into the market, to cut off the influence of speculators in the market.
CBN’s Efforts and Impact
The Central Bank of Nigeria last week began clearing about $7 billion in backlog of foreign exchange futures contracts – a move expected to bring relief to the naira, community businesses, and the country’s battered economy.
CBN’s helmsman, Yemi Cardoso, highlighted that the naira will adjust once the rules for market participants are clear.
CBN settled outstanding FX futures contracts owed to several banks, including Citigroup, Standard Chartered, and Stanbic IBTC.
Local banks have not been completely liquidated, but sources close to the president said they will be next on the list. Nigeria hopes to secure about $10 billion in new capital flows to resolve its foreign exchange backlogs.
Finance Minister Wale Edun also said on Monday that Nigeria expects foreign exchange inflows of $10 billion in the coming weeks to improve liquidity in the foreign exchange market.
He said without elaborating that the inflow would come from the issuance of dollar instruments, oil sales, and foreign investments.
US Federal Reserve’s Actions
The naira also faces fewer external shocks as the US Federal Reserve (which, according to recent reports, has maintained its key interest rate band at between 5.25% and 5.50 % for the second time at the November meeting.
This move comes from persistent inflation concerns despite strong economic growth in the third quarter and a significant increase in jobs.
Fed benchmark rate remains at its highest level in 22 years after a series of rate hikes that began in March 2022 to fight inflation.
Concerns about a recession are growing as US long-term interest rates hit a 16-year high of 5% in October, along with a rise in Treasury yields.
Uncertainty about U.S consumer spending also looms as student loan payments resume after suspensions related to the COVID-19 pandemic.
