The naira is likely to maintain gains this week, after appreciating for three straight days following the Central Bank of Nigeria’s move last week to increase the Monetary Policy Rate (MPR) by a record among other reforms aimed at stabilising the naira and boosting dollar supply.
On Tuesday, February 27, 2024, the CBN raised its MPR, also known as the benchmark interest rate by 400 basis points to 22.75 percent from 18.75 percent in July 2023.
After trading on Friday, the naira appreciated for the third straight day by 3.03 percent as the dollar was quoted at N1,548.25, stronger than N1,595.11 quoted on Thursday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), data from the FMDQ Securities indicated.
Bismarck Rewane, managing director/Chief Executive Officer of Financial Derivatives Company Limited, said the aggressive tightening of the CBN would strengthen the currency, deflate the stock market in a few days, and it would bring some level of sanity in the markets.
Rewane said he expects to see massive appreciation of the naira in the FX market.
Since the policy announcement, the naira has gained 2.24 percent in value as the dollar closed at N1,548.25 on Friday compared to N1,582.94 closed on Monday before the interest rate hike announcement by the CBN.
The daily foreign exchange market turnover increased by 36.31 percent to $296 million on Friday from $217.14 recorded on Thursday.
In February, the price of Brent crude oil experienced a modest increase of 0.2 percent month-on-month, reaching $81.91 per barrel. This uptick was attributed to market anticipation regarding the upcoming decision by OPEC+ regarding supply agreements for the second quarter, as highlighted in a report by Afrinvest Securities Limited.
In the same month of February, the country’s external reserves saw a 1.1 percent month-on-month increase, reaching $33.7 billion by the end of the month (as of February 29, 2024). This growth was supported by improvements in crude oil output, which rose to 1.4 million barrels per day compared to 1.3 million barrels per day in December 2023. Additionally, analysts point to early successes stemming from the ongoing foreign exchange reforms, with the CBN reporting approximately $2.0 billion in inflows year-to-date.
Regarding currency exchange rates, the month of February saw a slight depreciation of the naira in the official market. At the NAFEM window, the US dollar appreciated by 9.6 percent month-on-month against the naira, closing at an exchange rate of N1,595.11 per dollar by the end of February.
The daily average turnover in the NAFEM segment experienced a robust 61.0 percent month-on-month increase, settling at $217.1 million in February (as of February 29, 2024).
“For March, we anticipate marginal improvement in the naira across markets following efforts by the CBN to mop up excess system liquidity, ramp-up Open Market Operation (OMO) sales at attractive rates and eliminate FX market inefficiencies”, analysts at Afrinvest said.
BusinessDay reported that the country sold a record N1.056 trillion in OMO bills on Friday with the yield on the one-year bill rising to 27.3 percent.
