The value of the naira has risen significantly as a result of the low demand for US dollars on the black market.
The naira, Nigeria’s official currency, gained value on the black market on Thursday, trading at N570 to the dollar at the time of publication. When the market closed last week, the local currency was worth more than N575 to the dollar.
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At the Investors and Exporters (I&E) forex window, the naira traded at N410.81 to the dollar, which is now the official market rate.
The gradual recovery of the naira was accompanied by a decrease in dollar demand at the parallel market, where the vast majority of Nigerians previously obtained their foreign currency.
According to Murega Mungai, the Forex Trading Desk Manager at AZA Finance, a global forex dealer, the naira’s slight rebound was the result of a drop in demand for the dollar on the parallel market, with the Central Bank of Nigeria’s 30-day moving average Forex reserves increasing by 3.6 percent over the past week to $37.6 billion, according to an email note to investors.
Nigerian President Muhammadu Buhari requested approval from the National Assembly this week to increase the 2022 budget by N2.47 trillion to N16.45 trillion to account for new fiscal terms in the recently passed Petroleum Industry Act as well as other critical expenditures in the 2022 budget. “We anticipate that the more favourable environment for the Naira will continue in the coming week,” Mungai said. ”
Several forex end-users are gradually abandoning the parallel market in favour of the official selling points, which are becoming more prevalent as dollar teller points in bank branches become operational and the Central Bank of Nigeria (CBN) increases the amount of dollars available.
The Central Bank of Nigeria (CBN) recently increased weekly dollar allocation to Deposit Money Banks (DMBs) by 200 percent to increase dollar liquidity and prevent the naira from depreciating on a consistent basis.
DMBs now receive more than $400 million in weekly allocations to meet legitimate dollar demands from their customers.
Dollars were being sold at the official rate of N412 at the banks’ branches, and each traveller was entitled to purchase $4,000 per quarter for personal travel and $5,000 per quarter for business travel at the official rate of N412.
Bismarck Rewane, Managing Director of Financial Derivatives Company Limited, has stated that more dollar allocation is required to restore the naira to a position of strength.
Rather than administrative solutions, he believes that a significant increase in foreign exchange supply at the official window is a necessary and sufficient condition for the stability of the naira on the parallel market.
As Rewane pointed out, the balance of trade and current account are two of the most important factors influencing the naira’s value. In his words, “the terms of trade are improving, and the balance of trade deficit is shrinking, but Nigeria’s currency, the naira, continues to languish and plummet.”