Business

Naira strengthens as oil prices stabilize, analysts predict growth

Published

2 years ago

October 7, 2024

The Nigerian naira made a modest recovery against the U.S. dollar at the weekend, closing at N1,631.21 in the official Investor and Exporter (I&E) window.

This marks a 1.69 per cent appreciation from the previous day’s exchange rate of N1,659.26, even as market turnover saw a sharp decline.

The naira settled at N1,631.21 per dollar, an improvement from the prior day’s close of N1,659.26.

During trading, the naira fluctuated between a high of N1,679.00 and a low of N1,580.00, reflecting ongoing volatility.

The I&E window recorded $238.36 million in total turnover, a sharp 47 per cent decrease from the previous day’s $450.39 million.

In the parallel market, the naira also saw movement, opening at N1,669.49 and closing at N1,618.75, after fluctuating between N1,673.34 and N1,618.00 throughout the day.

The currency’s journey has been turbulent in 2024, having depreciated roughly 75 per cent year-to-date, driven largely by inflation and high demand for foreign exchange.

After trading at N1,300 per dollar in March, it has faced sustained downward pressure, particularly in August when it hovered around N1,500 before further depreciation in September.

The slight appreciation of the naira coincides with a stabilization in global crude oil prices, which are hovering around $77 per barrel.

The recent rebound in oil prices is partly fueled by geopolitical tensions in the Middle East, particularly between Iran and Israel. This has raised concerns over potential supply disruptions, further strengthening oil futures.

Oil remains a cornerstone of Nigeria’s economy, and higher prices could translate into increased revenue for the country, potentially easing economic pressures and supporting the naira. Nigeria’s external reserves have also seen a positive shift, reaching $39.07 billion by September 19, 2024, offering some hope for greater currency stabilization.

Financial analyst, Uche Eze, emphasized that the naira’s performance is intricately tied to both global and domestic factors.

“While the recent appreciation is a welcome sign, the substantial drop in market turnover indicates there’s still a lack of confidence in the market. The key here is whether crude oil prices can sustain their upward trend and how the government handles foreign exchange policy. If we see more consistent oil revenues and strategic macroeconomic policies, the naira could continue to recover,” Eze noted.

Economic expert, Amina Bello, added that external reserves are crucial to stabilizing the currency. “Nigeria’s growing reserves provide a cushion that could stabilize the naira in the near term.

However, the country needs to strengthen its non-oil revenue sources and foreign exchange policies to ensure sustained stability.”

The naira’s slight recovery is a positive development, but with oil prices and market turnover fluctuating, its future trajectory remains uncertain.

Experts agree that a combination of higher oil revenues, strong reserves, and supportive economic policies could be key to stabilizing the currency in the coming months.