CBN Policies Reap Rewards: Exchange Rate Achieves Best Gain in 6 Weeks

CBN Policies Reap Rewards: Exchange Rate Achieves Best Gain in 6 Weeks

The exchange rate between the Nigerian Naira and the US Dollar experienced a notable strengthening to N1,431/$ on Friday, March 22, 2024, marking a positive end to the week. This improvement is part of a sustained rally that has lasted for seven consecutive days, with the Naira gaining over 12% within one week. Data from the FMDQOTC, the official platform for setting exchange rates, confirms this positive trend and suggests that the Central Bank of Nigeria’s (CBN) policies, implemented aggressively since February, are yielding results.

Key insights from the data indicate that the exchange rate reached its best level since February 5th, when it closed at N1419.86/$1. Intra-day fluctuations saw the Naira trading at highs of N1,468/$1 and lows of N1,301/$1. The NAFEX rate, another benchmark, currently stands at N1,381.35/$1. Daily turnover in foreign exchange transactions amounted to $199.7 million, totaling $1 billion for the week, reflecting improved liquidity in the market. Projections suggest that Nigeria’s external reserves, currently at $34.3 billion, could rise to $35 billion, further bolstering market confidence.

Despite these positive developments, the parallel market still witnesses variations, with traders quoting exchange rates ranging from N1400-N1480/$1. Additionally, the UK Pound fell below N2000/£1 in the parallel market.

The success of the CBN’s interventions is evident, with policies aimed at increasing the supply of dollars and curbing speculative activities contributing to exchange rate stability. The central bank’s active participation in the official market, selling over $50 million according to sources, has been instrumental. Furthermore, stringent enforcement of foreign exchange regulations has helped mitigate destabilizing factors.

The recent strengthening of the Naira is particularly significant given the scrutiny faced by the CBN over currency depreciation. Criticism intensified with the introduction of the willing buyer, willing seller model, aimed at enhancing transparency. However, concerns were raised about its impact on reserves and inflation. A stronger Naira can alleviate inflationary pressures by reducing the cost of imports, thereby promoting overall price stability.

Overall, the strengthened exchange rate signals potential economic recovery and stability for Nigeria, offering hope of overcoming prevailing economic challenges.

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