The Nigerian naira appreciated massively against the dollar on Friday, 10th November 2023, closing at a new monthly high of N780.14/$1 at the official market.
The naira’s gain has come as a respite to many analysts, who had expected the Central Bank of Nigeria’s (CBN) recent move to clear some of its FX backlog to boost confidence in the currency.
The domestic currency appreciated 27.77% to close at N780.14 to a dollar at the close of business on Friday, data from the NAFEM where forex is officially traded, showed.
This represents an N216.61 gain or a 27.77% increase in the local currency compared to the N996.75 it closed on Thursday and a new all-time high per the Nairametrics tracker. The last all-time high was N776.14 recorded on November 3rd.
The intraday high recorded was N1096.17/$1, while the intraday low was N700.00/$1, representing a wide spread of N396.17/$1.
According to data obtained from the official NAFEM window, forex turnover at the close of the trading was $84.02 million, representing a 63.24% decline compared to the previous day.
However, the naira weakened at the parallel forex market where forex is sold unofficially, the exchange rate depreciated by 3.54%, quoted at N1130/$1, while peer-to-peer traders quoted around N1100/$1.
Backlog of foreign exchange forward contracts:
The Central Bank of Nigeria (CBN) last week said it has begun to clear the backlog of foreign exchange forward contracts a move that is expected to bring relief to the naira, the business community, and the economy at large.
The country has faced chronic dollar shortages since foreign investors exited local assets during a period of low oil prices. Since then, investors are yet to return and the central bank has struggled to meet the demand for dollars from foreign investors seeking to repatriate funds or airlines seeking to send money from ticket sales abroad.
The central bank’s payments follow the October 23 announcement by Wale Edun, the finance minister, that Nigeria was expecting $10 billion of inflows to improve FX market liquidity.
It will come as a relief to local lenders, who have been struggling to meet demands from customers due to chronic dollar shortages in Africa’s largest economy.
Toye Folosho, a director at the Manufacturers Association of Nigeria, said CBN’s clearing of the backlog is a good one for the manufacturing sector because a lot of manufacturers have not been able to procure their raw materials and machinery.
“The new move by CBN to clear backlogs with international lenders gives the signal that the apex bank is back in trading and business,” Gabriel Idahosa, deputy president of Lagos Chamber of Commerce and Industry, said.
“Apart from bringing back letters of credit, it generally brings back confidence in the traditional market. It restores the confidence of portfolio investors and international airlines. It will also bring foreign direct investments,” he added.
