Nigeria’s Naira Makes a Comeback Against the Dollar
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The naira, Nigeria’s currency, is rallying from its lowest points of the year, thanks to decisive actions by the Central Bank of Nigeria (CBN).
These include increasing interest rates and directly selling dollars to the foreign exchange markets.
As of April 2, the naira strengthened to 1,278 per dollar, a significant recovery from its February dip past 1,500, based on data from Lagos’s FMDQ exchange.
Investment firm Cardinal Stone reports an 11.4% rise in the naira’s value since March, marking it as one of Africa’s best performers this period.
Foreign investments in Nigeria have surged to $2.1 billion this year, up from $1.6 billion the year before.
Under President Bola Tinubu’s administration, economic policies shifted from fixed to market-driven exchange rates, driving this turnaround.
Post-inauguration, the exchange rate climbed from around 755 Naira to over 1,000 Naira by the end of the year.
CBN’s anti-inflation efforts: The Naira devalued twice last year, benchmark interest rate raised by 600 basis points to 24.75% since February.
Forex shortages, aggravated by reduced oil revenue and pipeline sabotage, have pressured the economy.
The CBN has implemented a policy where it sells $20,000 weekly at a fixed price to exchange traders, revisiting a strategy from 2021.
Increased dollar allocations to banks, with international banks required to maintain a minimum capital of 500 billion Naira.
Naira Devaluation and CBN Interventions
The Naira’s rapid devaluation sparked concerns; CBN interventions have eased gap between official and black market rates.
This suggests a decrease in unofficial dollar demand, providing some relief and stability to the currency’s value.
This could be partly seasonal, aligning with the timing of overseas studies for Nigerian students.
The CBN’s aggressive stance, including crackdowns on cryptocurrency exchanges like Binance, has played a part in stabilizing the currency.
However, protecting the naira has strained Nigeria’s forex reserves, which are crucial for servicing bonds and Treasury bills.
The first quarter’s interest payments on Treasury bills are projected at 1.01 trillion Naira ($777 million).
Analysts, including from Financial Derivatives and Goldman Sachs, confident in CBN, predict 1,200 naira per dollar within a year.
Cardinal Stone also predicts possible improvements in foreign exchange reserves, highlighting the broader implications of Nigeria’s financial strategies.
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