The exchange rate between the naira and the dollar saw a significant appreciation of 10.71 per cent on Monday, closing the day at N1,339.33/$1 on the Nigerian Autonomous Foreign Exchange Market (NAFEM) window.
This appreciation marks the highest closing rate since April 26, when the exchange rate was N1,339.23/$1, based on data from FMDQ.
This is also the biggest currency appreciation rate in two months since May 20 when it recorded a rate of 12.84 per cent.
On Friday, May 24, 2024, the exchange rate was N1,482.81/$1, with a minor increase of 0.19%. This marginal appreciation comes after the naira snapped its four-day winning streak. The FX turnover on Friday was significantly higher at $556.25 million, which represented an increase of 231.99%.
The massive increase in FX turnover was likely attributed to the CBN’s aggressive liquidity management strategy, which saw the apex bank raise a substantial N1.16 trillion from the OMO bill auction.
This move forms part of the CBN’s efforts to control inflationary pressures and stabilize the naira amidst ongoing economic challenges.
However, the FX turnover decreased sharply by 67.50%, amounting to $180.8 million on Monday. The substantial drop in FX turnover suggests a lower demand for dollars, which is a plausible factor contributing to the appreciation of the naira.
When fewer dollars are being bought, the demand decreases, leading to a stronger naira against the dollar.
Nigeria’s foreign exchange (FX) reserves have been on a significant increase over the past month. The reserves increased by approximately $630.1 million in a period as of May 23, 2024.
The latest data from the Central Bank of Nigeria (CBN) reveals a steady upward trend in the reserves, showcasing the country’s resilience in maintaining its financial stability amidst challenging economic conditions.
The Monetary Policy Committee (MPC) recently urged the CBN to focus on boosting the external reserves.
A part of the Monetary Policy Communique released at the end of its 295th meeting read: “The Committee also noted the marginal increase in the external reserve balance between March and April 2024 and urged the Bank to sustain its focus on accretion to reserves.”
The CBN also plans to double diaspora remittance inflow this year in an effort to ensure a steady flow of foreign exchange into the country.
While it appears the apex bank is committed to boosting the reserves after a recently severe decline, this increase in FX reserves persists amid volatility in the official market, which continues to grapple with the unstable supply of dollars.
