The naira strengthened in the parallel market on Thursday as the three-day public holiday ended. The naira sold for about N1,150 to the dollar, up from N1,200 on Monday.
The Central Bank of Nigeria’s (CBN) policies drove the naira’s appreciation in the parallel market. The policies included paying dollars to Bureau de Change (BDC) operators at the lower end of the previous trading range at the Nigeria Autonomous Foreign Exchange Market (NAFEM).
Traders noted that the CBN’s policies, along with declining demand for the US dollar and the extended holiday, contributed to the naira’s rise on Thursday.
On Monday, 1,588 qualified BDC operators purchased $10,000 from the CBN at N1,101 per dollar, compared to N1,210 during the prior transactions.
The naira closed at N1230.61 to the dollar on Monday at the NAFEM window, up from N1,251.05 on Friday, a gain of N20.44.
Daily turnover dropped to $125.55 million from $248.29 million on Friday, a 49.43% decrease.
The highest spot rate at the NAFEM on Monday was N1,261, while the lowest was N1,200.
The CBN raised the Monetary Policy Rate (MPR) by 200 basis points from 22.75% in February 2024 to 24.75% in an attempt to control inflation and stabilize the naira.
The CBN made major adjustments on June 14, 2023, including eliminating market segmentation, combining all segments under the Investors & Exporters window (now called the Nigerian Autonomous Foreign Exchange), and reinstating the Willing Buyer, Willing Seller framework.
In August 2023, the CBN resumed forex sales to BDCs, limiting their buying and selling spread to +/-2.5% of the weighted average of prior day’s I&E window transactions. The CBN also capped banks’ Net Open Position (NOP) in January 2024.
The CBN instructed International Money Transfer Operators (IMTOs) to provide beneficiaries with naira payment exchange rates based on current market pricing.
In February 2024, the CBN eliminated limits on interbank proceeds sales and raised ceilings on the spread of interbank forex operations. It also stipulated electronic-only payments for Personal Travel Allowance (PTA) and Business Travel Allowance (BTA).
By March 2024, naira volatility had further declined due to additional CBN reforms to improve transparency and attract more forex traders. The NAFEM closing rate on March 28 was N1309.4, a significant increase from its peak of N1,650 on February 26, 2024.
FSDH analysts believed the recent forex reforms, high interest rates, and improved oil production would bring stability to the forex market.