The naira surged to N1,173.88/$1 on the Nigerian Autonomous Foreign Exchange Market (NAFEM) window on Tuesday, marking a 14.09% increase from the previous day’s rate. This is the highest one-day increase since January 2024 and follows a significant rise in foreign exchange (FX) turnover, which jumped by 81.59% to $328.32 million.
On Monday, May 27, 2024, the naira held steady at N1,339.33/$1, according to data from the FMDQ. However, the FX turnover on that day was notably lower at $180.8 million, a 67.50% decrease from the previous trading session at the end of the previous week.
### Key Drivers of the Naira’s Surge
On Tuesday, May 28, 2024, the FX market saw a remarkable recovery, with turnover climbing to $328.32 million. This sharp increase in both value and turnover indicates renewed activity and demand in the FX market, likely driven by interventions and policies aimed at stabilizing the naira.
### Factors Influencing the Improved Exchange Rate
The improved exchange rate suggests the Central Bank of Nigeria’s (CBN) efforts to maintain currency stability are yielding positive results, despite fluctuations in market liquidity. Analysts have noted that maintaining the naira at this rate amid varying turnover levels points to a controlled foreign exchange environment, which is critical for investor confidence and economic planning.
The increase in FX turnover may be attributed to several factors:
– **End-of-month financial settlements**
– **Increased inflows from foreign investments**
– **Strategic measures by the CBN to ensure sufficient market liquidity**
### Auctions and Monetary Policy
The appreciation in the naira value coincided with auctions of treasury and Open Market Operation (OMO) bills. Following the 295th meeting of the Monetary Policy Committee (MPC) of the CBN, the monetary policy rate (MPR) was raised by 150 basis points to 26.25%. Subsequently, the CBN offered a total of N508.98 billion during the Nigerian treasury bill (NTB) auction held on May 22, 2024. The auction saw subscription levels significantly surpass the initial offer, highlighting the continued appetite for fixed-income securities in a volatile economic landscape, with subscriptions reaching N1.5 trillion, though only N638.98 billion was allotted.
Additionally, the CBN raised N1.16 trillion from the OMO bill auction. These moves are part of the CBN’s efforts to control inflationary pressures and stabilize the naira amidst ongoing economic challenges.
### Broader Economic Impact
The increase in the naira’s value, higher FX turnover, and successful auctions of government securities are pivotal in the CBN’s broader strategy to maintain price stability and support economic growth. By mopping up excess liquidity, the CBN aims to curb inflation, a major concern for policymakers. The funds raised from these auctions are expected to help mitigate inflationary pressures by reducing the amount of money in circulation, thereby supporting the naira.
Overall, these developments reflect a concerted effort by the CBN to create a more stable and attractive economic environment for both domestic and international investors.
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