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The Nigerian Naira has appreciated significantly against the US dollar, marking a 0.90 per cent increase as the official foreign exchange (FX) market saw a surge in supply this Tuesday.
According to data from the FMDQ Securities Exchange, the Naira closed at N1,603.38 per dollar, a significant improvement from Monday’s rate of N1,617.96 at the Nigerian Autonomous Foreign Exchange Market (NAFEM). The intraday trading witnessed the Naira climbing to a high of N1,637 per dollar from Monday’s low of N1,650/$1, and the day’s lowest exchange rate also strengthened, closing at N1,425.35 compared to N1,511 the day before. This appreciation was fueled by a 27.09 percent increase in the dollar supply in the market. On Tuesday, transactions totaled $122.18 million, a substantial rise from $96.13 million recorded on Monday. Contributors to this supply include banks and other willing sellers and buyers in the FX market. Parallel market figures also mirrored this positive trend, with the Naira appreciating by 0.81 percent to the average of N1,605 against the dollar. Exchange rates in this sector saw dollars being traded within a range of N1,600 to N1,612. Market analysts link this fortuitous uptick to the Central Bank of Nigeria’s (CBN) recent decision to hike the Monetary Policy Rate by 400 basis points to 22.75 percent, up from 18.75 percent, to combat persistently high inflation rates among other economic challenges. Despite these gains, concerns remain about the Naira’s stability. The Economist Intelligence Unit (EIU) highlights ongoing challenges such as high inflation, negative real interest rates, and a scarcity of foreign reserves that continue to undermine confidence in the Naira, even after a 45 percent devaluation in February. The EIU forecasts caution against expecting another devaluation but suggest that foreign borrowing might be leveraged to bolster foreign reserves, potentially stabilizing the Naira towards the end of 2024. Looking forward, the EIU predicts a gradual weakening of the Naira, projecting an exchange rate of N1,770:US$1 by the end of 2024 and N1,817:US$1 by the end of 2025. The report also forecasts a more significant depreciation by 2028, with an expected rate of N2,381:US$1, attributed to monetary and fiscal policy challenges and fluctuating world oil prices.
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