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‘Bond market activities, CBN interventions’ — analysts speak on naira stability in FX market

'Bond market activities, CBN interventions' -- analysts speak on naira stability in FX market 'Bond market activities, CBN interventions' -- analysts speak on naira stability in FX market

Analysts have tied the performance of the naira in the parallel market on Friday to the interventions by the Central Bank of Nigeria (CBN) and Nigeria’s activities in the bond market, among other factors.

On Friday, the naira recorded its best performance against the dollar in four months after trading at N1,600/$ in the parallel section of the foreign exchange (FX) market.

Nigeria’s local currency ended the week with 7.78 percent gains, having appreciated from N1,735/$ reported on November 29.

Since the naira crossed N1,700/$ on September 27 in the parallel market, the local currency had fluctuated between N1,670 per dollar and N1,760/$ over the past seven weeks — signalling a path to price discovery.

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However, the recent appreciation has sparked optimism about a stronger naira, as analysts said the foreign exchange policies of the CBN are yielding positive results and the possibility of the local currency appreciating further is high.

Speaking to TheCable, Charles Abuede, research lead at Cowry Asset Management Limited, said several factors have contributed to the appreciation of the naira.

Abuede noted that increased crude oil production has bolstered Nigeria’s export capacity, which has led to higher foreign exchange inflows, alleviating some of the pressure on the naira.

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“The naira’s current positive trajectory, trading within a range of N1,670 to N1,760 to the US dollar in recent days or weeks, reflects the combined effects of the monetary authority’s efforts and prevailing market dynamics,” Abuede said.

“This development underscores a significant step towards transparency and price discovery in the foreign exchange market, even amid persistent volatility.

“One key factor contributing to the naira’s improved performance is the increase in crude oil production, which has bolstered Nigeria’s export capacity.

“The resultant rise in foreign exchange inflows has provided a much-needed cushion for the naira, alleviating some of the pressure it faced earlier in the year.

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“These inflows have been pivotal in stabilising the currency, enhancing liquidity in the forex market, and supporting economic activity reliant on dollar availability.”

Also, Muda Yusuf, chief executive officer (CEO) of the Centre for Private Promotion Enterprise (CPPE), highlighted the role of CBN interventions in stabilising the currency.

The CBN sold FX to the bureau de change (BDC) operators four times in 2024 to support the naira against the dollar.

He said the CBN has been able to intervene due to improved foreign reserves, bolstered by an improvement in FX inflows from the international money transfer organisations (IMTOs) and issuance of bonds.

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“First of all, we have noticed that over the last six months or so, there has been some stability in the Naira exchange rate. This has been on the back of the periodic intervention by the central bank,” Yusuf said.

“We have seen this periodic intervention to stabilise rates because the reserves have improved. Currently, our reserves are now about $40 billion.

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“Over time, we have seen an improvement in foreign exchange inflows from the International Money Transfer Organizations (IMTOs).

“It has improved significantly. We had the domestic dollar bond that was issued, $500 million. That also has some impact on reserves.”

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The federal government launched the dollar-denominated domestic bond on August 15.

‘POSITIVE OUTLOOK INFLUENCING PERFORMANCE OF NAIRA’

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Yusuf said the outlook of the foreign exchange market may have also influenced the performance of the naira, as the capital raised from the bond market influences the expectations of speculators.

“And only recently, we issued a $2 billion euro bond. That will also have some positive effects on our foreign exchange outlook,” he said.

“So, the positive outlook may have been driving the appreciation of the currency because investors and some of these speculators also react to expectations.

“I think the outlook may remain positive because the CBN seems to be in a much better position now to be periodically intervening in the market.”

On December 2, the Debt Management Office (DMO) said Nigeria raised $2.2 billion through a eurobond auction.

However, Yusuf said a major risk to be cautious of is the fiscal side of government operations.

According to the economist, “if we don’t manage the fiscal side well, and we continue to throw liquidity from the fiscal side into the economy, it may reverse all these gains that we are beginning to see in the market”.

‘NAIRA WILL APPRECIATE TO N1,500/$ BY YEAR-END’

On his part, Aminu Gwadabe, chairman of the Association of Bureaux De Change Operators of Nigeria (ABCON), projected that the naira would close the year at N1,500/$.

Gwadabe expressed confidence in the naira’s prospects, noting the efforts of the CBN to boost the supply of the dollar.

According to Gwadabe, due to the transparency in the sector, “Nigeria has seen a lot of increasing confidence from portfolio investors”.

“This appreciation is nothing more than liquidity we are receiving from portfolio investors. You know, recently we issued a bond that was over-subscribed,” he added.

The ABCON chairman also said the remittance from the IMTOs “is evidence of positive results of the reforms”.

“They (IMTO) are receiving about 600 million dollars monthly. However, I said that is still not high because the other figures, IMF, World Bank statistics, remittance figure is about $21 billion. Even though it’s far, far better because I remember then we don’t even count $100 million monthly,” he said.

“And the trajectory will continue in the next one, or two months.”

Yusuf also projected continuous appreciation of the naira.

“CBN has also been intervening to ensure that there’s minimum volatility in the market. So, the level of confidence in the market has been significantly elevated. The euro bond, just as I said, is also helping to elevate the positive outlook for the foreign exchange,” Yusuf said.

Gwadabe, however, said the lasting solution to continuously strengthened naira “is injection of liquidity into the retail end of the market where volatility is pervasive”.

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