The exchange rate between the Naira and the Dollar strengthened to N1,431/$ on Friday, March 22, 2024, closing the week on a positive note.
Data from the FMDQOTC, where the exchange rate is officially set, revealed that the official currency gained 1.52% at the close of business, continuing a rally that has now lasted 7 days.
The Naira has now gained over 12% in one week, suggesting the central bank’s policies, implemented aggressively since February, are beginning to show success.
The exchange rate closed at N1,431/$1, the best rate since February 5th when it closed at N1419.86/$1
According to the FMDQ, the Naira recorded an intra-day high and low of N1,468/$1 and N1,301/$1 respectively, while the NAFEX rate is currently N1,381.35/$1.
On the parallel market where the exchange rate trades unofficially, traders still quoted between N1400-N1480/$1 depending on who is buying or selling.
The Central Bank of Nigeria’s (CBN) recent policies have played a pivotal role in the strengthening of the Naira against the dollar, a trend highlighted by the significant appreciation in its value over the past week.
Among the measures that have contributed to this positive outcome, the CBN’s strategic interventions in the foreign exchange market stand out.
Traders who suggest the central bank was active in the official market during the week. The CBN likely sold over $50 million according to one trader with knowledge of the matter.
By increasing the supply of dollars, the apex bank is addressing the demand-supply mismatch that is perceived to have previously led to the Naira’s depreciation.
The CBN’s rigorous enforcement of foreign exchange regulations has curtailed speculative activities, contributing to exchange rate stability.
The recent strengthening of the Naira comes as a significant relief to the Central Bank of Nigeria (CBN), which had been facing considerable scrutiny over the currency’s depreciation.
This scrutiny intensified with the introduction of the willing buyer, willing seller model, aimed at creating a more transparent and market-driven forex trading environment.
However, critics suggest this may have exacerbated the currency crisis, especially as Nigeria’s external reserves were not robust enough to support such a move. They also pointed to its impact on inflation.
The exchange rate’s impact on inflation is profound, given the correlation between the two.
In Nigeria, where the economy is significantly import-dependent, a weaker Naira makes imported goods more expensive, thereby fueling inflation.
The rise in the February inflation rate to 31.7%, coinciding with a period of notable depreciation of the Naira, underscores this dynamic.
A stronger Naira can help temper inflationary pressures by making imports less costly, contributing to overall price stability.
For most Nigerians, a stronger Naira signals potential economic recovery and stability and that the country might be on the verge of overcoming some of its economic challenges.