The naira experienced a notable recovery over the weekend, appreciating by 1.0 percent to N1,482.81 per dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
This positive movement comes amid a sustained increase in Nigeria’s foreign exchange (forex) reserves, which recently grew by $73.05 million, reaching a total of $32.74 billion.
This marks the fifth consecutive rise in reserves, following previous increases of $195.01 million, $89.76 million, $132.68 million, and $10.76 million in recent weeks.
In the forwards market, naira contracts also saw improvements. The one-year contract appreciated by 1.1 percent to $1,504.10 per dollar, the three-month contract increased by 1.4 percent to N1,546.65 per dollar, and the six-month contract rose by 0.6 percent to N1,621.89 per dollar. However, the one-year contract experienced a slight dip of 0.1 percent to N1,769.62 per dollar.
Experts in finance and economics concur that the accumulation of external reserves is a positive indicator for Nigeria’s currency management and macroeconomic stability. Analysts anticipate that adjustments in forex management rules, improved crude oil production, and a rise in global oil prices could help mitigate Nigeria’s volatile forex situation.
Professor Uche Uwaleke, President of the Association of Capital Market Academics in Nigeria, highlighted that an increase in reserves strengthens the Central Bank of Nigeria’s (CBN) ability to meet forex obligations and intervene in the market. He noted that sustained growth in reserves could lead to further naira appreciation and exchange rate stability, deterring speculative activities in the forex market. However, Uwaleke emphasized the need for Nigeria to reduce its reliance on imports to support forex recovery, advocating for export-based diversification as the long-term solution.
Uwaleke also suggested the government promote a shift in consumption behavior through a ‘Buy Nigeria law’ similar to the ‘Buy America Act’ and the ‘Build America, Buy America Act.’ Additionally, he recommended revisiting and expanding the CBN’s currency swap deal with the People’s Bank of China to settle transactions in Yuan, thereby bypassing the dollar. Issuing panda bonds, which are denominated in Chinese Yuan, could further bolster Nigeria’s external reserves.
Olatunde Amolegbe, Managing Director of Arthur Steven Asset Management, echoed these sentiments, stating that the ongoing increase in forex reserves will support the government’s efforts to enhance liquidity and stability in the forex market. He noted that a consistent rise in reserves could stabilize or even strengthen the naira against the dollar.
The International Monetary Fund (IMF) has expressed optimism about Nigeria’s macroeconomic reforms in its latest assessment report, citing improvements in oil production, efforts to boost food production, and social welfare programs.
Central Bank of Nigeria Governor, Dr. Olayemi Cardoso, outlined initiatives aimed at bolstering the country’s forex position, which he believes will lead to increased stability in both forex reserves and the naira. He mentioned collaboration with the Ministry of Finance and the Nigerian National Petroleum Corporation Limited (NNPCL) to ensure that all forex inflows are returned to the CBN, enhancing overall forex flows and reserve accumulation.
Cardoso attributed expected forex market stability in 2024 to a reduction in petroleum product imports and the implementation of a market-determined exchange rate policy by the CBN. This reform aims to streamline and unify multiple exchange rates, fostering transparency and reducing arbitrage opportunities, thereby boosting investor confidence and attracting foreign investment.
He emphasized the CBN’s comprehensive strategy to improve liquidity in the forex markets, focusing on fundamental issues that have hindered market operations. Cardoso reaffirmed the importance of market integrity and transparency in determining exchange rates, ensuring stability for businesses and individuals. He also suggested that the naira is currently undervalued and that coordinated fiscal measures will expedite genuine price discovery, contributing to a balanced and stable exchange rate in the near term.
