The exchange rate between the naira and the dollar strengthened for the third consecutive day, closing at N1,534.9/$1 on the official market. This marks the strongest level the naira has reached in 7 days.
The official NAFEX rate, which serves as the average rate and benchmark rate used by the CBN, was quoted at N1,567.65 on March 1st, 2024.
The intra-day high reached N1,600/$1, while the intra-day low was N1,425/$1.
The official exchange rate has remained below N1,600 since February 28th, indicating a gradual return to stability in the official market.
Why the Naira is gaining
Checks from Nairametrics reveal that the exchange rate last traded above N1,600/$1 on February 28th, when it sold for N1,609.51/$1.
Since then, it has sold for N1,595.11 and N1,548.25 on February 29th and March 1st, respectively, establishing a trend that should reassure policymakers.
The official exchange rate fell to N1,615.94/$1 as the central bank intensified its efforts to combat inflation.
- The apex bank raised its benchmark monetary policy rate to 22.75%, sold over N3 trillion in Treasury Bills and OMO bills combined, and also introduced new guidelines for the operation of BDCs.
- It commenced the sale of forex to BDC operators while also banning over 4,000 operators for failing to meet its licensing requirements.
- CBN Governor Yemi Cardoso also hosted a virtual event with foreign portfolio investors, continuing to advocate for hot money inflows.
- The apex bank also clamped down on the cryptocurrency trading platform Binance, collaborating with security agencies to restrict their operations.
- While it is unclear if these actions are the reasons for the strengthening exchange rate, analysts suggest that a market equilibrium may be emerging.
Forex turnover in the last three days of trading has improved, averaging $250 million per day, up from $160 million per day a week earlier.
- Despite these improvements in the official market, the exchange rate on the parallel market was quoted at around N1,600/$1, according to information obtained from a cross-section of parallel market operators.
- Operators report an increase in demand at the beginning of the week, as more Nigerians looked to buy than sell.
- Nevertheless, this marks a significant improvement from the record low of N1,880 recorded on February 22nd.
