Nigeria’s naira rebounds against dollar after CBN intervention: summary

What we know

• Nigeria's currency, the naira, is making a recovery from a series of record lows earlier this year, after interventions by the Central Bank of Nigeria (CBN).
• Recent data shows that as of March 27, the naira closed at 1,300 per dollar, a significant improvement from the 1,500 recorded in February following interventions such as interest rate hikes and direct sales of dollars to foreign exchange bureaus.
• The surge in the naira's value can be attributed to various factors, including increased foreign inflows, which have surged to $2.1 billion since the beginning of the year, compared to $1.6 billion in 2023, according to investment management firm Cardinal Stone.
• Following the depreciation of the naira in recent years as a result of dollar shortages fueled by revenue shortfalls in the oil industry, President Bola Tinubu removed the fixed currency peg upon taking office last May, allowing the naira's value to be determined by market forces. Initially, the exchange rate hovered around 755 naira to the dollar in the weeks following this decision.
• To stabilize the currency, the CBN has implemented several measures. These include devaluing the naira twice in the past year, most recently in January, and raising the benchmark interest rate by 600 basis points since February to 24.75% to combat inflation.

What they said

Financial Derivatives, a consultancy based in Lagos, pointed to the Central Bank of Nigeria's reported settlement of a $7 billion backlog in forward commitments as a factor boosting confidence in the country's central bank. Goldman Sachs analysts anticipate the dollar to be valued at 1,200 naira "within the next 12 months," indicating potential strengthening of the naira, Semafor reports. Similarly, Cardinal Stone foresees "latitude for further improvements in FX reserves," suggesting optimism regarding Nigeria's foreign exchange reserves. According to a research report by Cardinal Stone, “The Naira has exhibited notable resilience in recent weeks and has strengthened by 11.4% at the official markets since the beginning of March, positioning it as one of the top-performing currencies in Africa. These gains are attributed to the resumption of foreign exchange sales to Bureau de Change (BDC) operators, with the CBN selling approximately $20,000 to each BDC on a weekly basis. Furthermore, the CBN has intensified its oversight of BDCs, leading to the revocation of licenses of 4,173 out of the total 5,690 operators in Nigeria."