By Chinwendu Obienyi
Market analysts have said they expect the naira to maintain its positive performance across FX segments after it gained 8.5 per cent in the parallel market at the end of February.
The currency had appreciated to N1,500/$1, marking a seven-month high in the parallel market, while the official exchange rate remained much lower at around N767.54/$1 in January.
However, in the official market, the naira faltered by 1.7 per cent month-on-month (m/m) against the greenback to close at N1,500.15/$1 at the end of February. Conversely, the parallel market rate appreciated 8.5 per cent m/m to N1,490/$1.
On the domestic front, FX reserves level declined by 3.2 per cent m/m to $38.46 billion, after its 7th consecutive week of decline, dropping by $241.50 million week-on-week (w/w).
Last month, the global oil market performance was shaped by factors, some of which included concerns over rising US oil inventory, potential US-Russia negotiations which could drive sanction relief, Ukraine’s attack on the Caspian Pipeline Consortium in Russia and concerns over a potential new China-U.S. trade war, which heightened fears of slower economic growth. As such, Brent crude oil price dipped 3.1% m/m to $73.7/bbl.
Commenting on the performance of the naira, the Managing Director, Afrinvest Consulting Limited, Abiodun Keripe, linked the decline in the official market to CBN’s efforts to stabilise the naira, particularly through the resumption of payments for the verified portion of the outstanding $7.0 billion foreign exchange backlog.
“In March, we anticipate the Naira will maintain its positive performance across FX segments, supported by the CBN’s continued USD supply to BDCs and DMBs, provided there are no adverse market shocks”, Keripe said.
In the forwards market, the naira rates increased across the 1-month (+0.2 per cent to N1,539.17/$1), 3-month (+0.5 per cent to N1,607.09/$1), 6-month (+0.2% to N1,711.31/$1) and 1-year (+0.3 per cent to N1,900.01/$1) contracts.
For their part, analysts with Cordros Research said, “We expect FX liquidity to remain robust as a more efficient market and improved market confidence continues to support inflows from autonomous sources. The CBN is also expected to intervene in periods of high volatility, keeping the naira stable in the near term”.
The gap between the parallel and official exchange rates has narrowed significantly, reducing market distortions.
Recently, the Central Bank of Nigeria (CBN) governor, Olayemi Cardoso at the Monetary Policy Committee (MPC) meeting noted that the launch of the Bloomberg’s B matching system brought open transparency with respect to buying and selling of foreign exchange and the difference in rates between the BDCs and the official rate has come down to maybe less than 1 per cent as at the last count.
“The measures we have taken so far in terms of orthodox monetary policies, have begun to yield fruits. We will continue with the orthodox policies that we have embarked upon. We can see that attrition to reserves has been consistent, and at one point in time, we achieved the highest level of reserves in the past three years”, Cardoso said.