Naira Strengthens Against Dollar Amid CBN’s Forex Backlog Clearance

The Nigerian naira witnessed a significant rebound against the United States dollar on Wednesday in both official and parallel markets, as the Central Bank of Nigeria (CBN) successfully cleared all valid foreign exchange backlogs, a move long awaited by market stakeholders.

The Acting CBN Director of Corporate Communications, Mrs. Hakama Sidi Ali, announced in Abuja that the bank had settled an inherited backlog of $7 billion in claims, with $1.5 billion recently cleared.

This action aligns with the commitment of CBN Governor, Mr. Olayemi Cardoso, to enhance forex market liquidity.

In the parallel market, the naira strengthened to 1,410/dollar, while the official rate at the Nigerian Autonomous Foreign Exchange Market (NAFEM) stood at N1,492/dollar.

This improvement represents a 4.5 percent increase at NAFEM and a 13.5 percent rise in the black market from the previous day’s rates.

Market analysts attribute the naira’s gain to a decline in demand from forex speculators, following a series of strategic measures by the CBN to stabilize the currency.

Recent CBN directives and the enforcement actions against illegal Bureau De Change (BDC) operators by the Economic and Financial Crimes Commission (EFCC) in Lagos, Abuja, and Kano have also played a crucial role in curtailing market volatility.

Local BDC operators reported varied trading activities, with rates ranging from N1,400 to N1,500 per dollar, reflecting the market’s response to the evolving forex landscape.

Despite the naira’s recent gains, some traders expressed concerns over potential losses, especially those who purchased dollars at higher rates.

In Lagos, the sentiment was mixed as traders noted a decrease in dollar demand, attributing it to the CBN’s renewed dollar sales to BDC operators at lower rates.

Predictions from market participants suggest that the naira could strengthen further if the current trend persists.

The PUNCH’s investigation revealed a substantial increase in forex turnover at the official market, with a total of $11.43 billion traded within two months, marking a significant rise from previous periods.

This boost in market activity follows comprehensive reforms by the CBN, including the introduction of a two-way quote system and adjustments in the BDC segment to promote transparency and price discovery.

As Nigeria’s external reserves grow, reaching $34.37 billion in March 2024, the pressure on the naira/dollar exchange rate eases, reflecting the positive outcomes of the CBN’s forex policies.

Furthermore, a dramatic increase in Diaspora remittances, reported at $1.3 billion in February, indicates a robust inflow of foreign currency, bolstering the naira’s position against the dollar.