See the Effect of CBN reform tames blackmarket on Nigeria’s Naira
Throughout this month, the naira has traded consistently between 1,473 and 1,485 per dollar, as reported by FMDQ data compiled by Bloomberg. This has resulted in its 10-day rolling volatility hitting a one-year low and its 100-day fluctuations dropping to their lowest since November.
This newfound stability marks a modest success for President Bola Tinubu’s ongoing reforms, which have relaxed currency controls and aligned its value closer to street rates. The reduction in demand for foreign exchange, due to increased dollar inflows, has helped mitigate market distortions and stabilize prices, analysts suggest.
“The demand for FX has slowed, and participants in the onshore market appear more confident in the naira,” noted Samir Gadio, head of Africa strategy at Standard Chartered Bank in London, in an email response. “There’s minimal pre-emptive buying pressure,” he added.
The Central Bank of Nigeria, during its recent Monetary Policy Committee meeting, raised its key interest rate to a record 26.25% in an effort to attract more dollar inflows, reduce volatility, and combat inflation, which soared to a 28-year high of 33.95% in May. This year, the regulator has implemented a cumulative 750 basis points increase in rates and engaged in substantial liquidity control through regular bond sales and inflows from external lenders to stabilize the market.
Recent financial inflows have also bolstered the naira’s stability. Last month, Nigeria secured $925 million from Afreximbank as part of a $3.3 billion prepayment facility backed by crude oil, aimed at boosting local foreign exchange reserves. Additionally, the World Bank approved $2.25 billion in funding this month to support Nigeria’s economic reforms, further enhancing liquidity in foreign exchange markets.
“The recent resilience of the naira can be attributed to reduced demand pressures and the inflows from Afreximbank,” explained Omobola Adu, economist at BancTrust & Co. Investment Bank. “Furthermore, the recently approved World Bank loan is expected to provide additional short to medium-term support for the local currency,” he added, anticipating more inflows later this year.he naira has traded in a narrow range between 1,473 and 1485 per dollar this month, according to FMDQ data compiled by Bloomberg. That has sent its 10-day rolling volatility to the lowest in a year and its 100-day swings to the least since November.
The newfound calm is a mini victory for President Bola Tinubu’s yearlong reforms that loosened controls on the currency and brought its value closer to street rates. Now, dollar inflows are reducing buyers’ needs to load up on foreign exchange, thus curbing demand and price distortions, according to strategists.
FX demand has slowed and onshore market participants seem more confident in the naira,” Samir Gadio, head of Africa strategy at Standard Chartered Bank in London wrote in an email response. “There is limited front-loading of demand,” he said.
parallel market this month, down from 20% in May.
The Central Bank of Nigeria at its Monetary Policy Committee meeting last month raised its key interest rate to a record 26.25% in a bid to attract dollar inflows, end volatility and curb inflation, which accelerated in May to a 28-year high of 33.95%. The regulator is combining a total 750 basis points of hikes this year with heavy mop-up of naira liquidity through regular bond sales as well as dollar inflows from external lenders to stabilize the market.
Fresh Flows
Africa’s most populous nation last month obtained $925 million from Afreximbank been the final tranche of crude oil-backed $3.3 billion prepayment facility intended to boost the supply of hard currency on the local foreign-exchange market. The World Bank approved $2.25 billion funding to support Nigeria’s economic reforms this month which is expected to further boost foreign exchange liquidity.
The recent stability of the naira has been aided by lower demand pressures and inflows from Afreximbank,” said Omobola Adu, economist at BancTrust & Co. Investment Bank. Also, “the recently approved World Bank loan should provide more support for the local currency over the short to medium term, pending other pote Intial inflows later this year.”
