The Nigerian Naira displayed a marginal appreciation against the US dollar on the official market, despite a significant decline in foreign exchange (FX) turnover. On May 22, 2024, the Naira closed at N1,462.59/$1 on the NAFEM window, reflecting a 0.21% increase from the previous day’s closing rate of N1,465.68/$1, according to the latest FMDQ data.
This slight gain comes amid a notable 53.97% drop in FX turnover, which plummeted from $268.17 million on May 21, 2024, to $123.45 million on May 22, 2024.
The marginal appreciation of the Naira can be attributed to strategic interventions by the Central Bank of Nigeria (CBN) and market dynamics favouring the local currency. Despite the reduced FX turnover, which typically exerts downward pressure on the Naira, the currency managed to maintain a positive trajectory, albeit modestly.
During the trading session on May 22, the intra-day high was recorded at N1,531/$1, while the intra-day low reached N1,401/$1, showcasing the volatility within the market.
The wide range between the intra-day high and low indicates significant fluctuations in the value of the Naira within a single trading day.
This level of volatility can be attributed to various factors, including speculative trading, varying levels of foreign currency demand, and reactions to economic news and policy announcements.
The intra-day high of N1,531/$1 suggests moments of intense pressure on the Naira, likely driven by heightened demand for foreign exchange or a temporary shortfall in supply. Conversely, the intra-day low of N1,401/$1 points to periods when the Naira experienced stronger support, possibly due to lower demand for dollars.
The CBN increased the monetary policy rate (MPR) by 150 basis points, to a new unprecedented 26.25% at the end of its 295th meeting of the Monetary Policy Committee (MPC).
This is a lower hike compared to the 200 basis points at 24.75% after the previous meeting. The decision announced by the CBN governor, Yemi Cardoso, propels the MPR to its highest point ever, reaffirming the CBN’s aggressive stance on monetary tightening in response to inflationary pressures.
The Central Bank’s new monetary policy adjustment, aimed at stabilizing the Naira, included a notable rate hike. The policy rate was raised to curb inflation and attract foreign investment, theoretically supporting the Naira.
Also, the CBN offered a total of N508.98 billion during the Nigerian treasury bill (NTB) auction held on May 22, 2024, with subscription levels significantly surpassing the initial offer, highlighting the continued appetite for fixed-income securities amidst a volatile economic landscape.
Despite the oversubscription, only about N638.98 billion was allotted to the treasury bill investors. The heightened interest in treasury bills can be attributed to the recent increase in the Monetary Policy Rate (MPR), which has made government securities more attractive to yield-seeking investors.
This heightened interest in treasury bills likely diverted funds from the forex market, contributing to a decline in forex turnover.
The shift in investor focus towards higher-yielding government securities likely supported the marginal appreciation of the Naira by reducing pressure on the foreign exchange demand.
