Naira strengthens at official, parallel markets on increased dollar supply

THE Naira appreciated against the dollar on Monday, bolstered by a moderate inflow of foreign currency into the Nigerian economy.

At the Nigerian Foreign Exchange Market (NFEM), the local currency gained N3 to close at N1,538 per dollar, improving from N1,541 per dollar recorded last Friday, according to data from the Central Bank of Nigeria (CBN).

The strengthening of the naira was also reflected in the parallel market, where it appreciated to N1,645 per dollar on Monday. This marked a significant improvement from last Friday’s rate of N1,660 per dollar. Market analysts have largely attributed this development to increased dollar inflows, particularly from diaspora Nigerians returning home for the Christmas holiday season.

The holiday period traditionally sees a spike in remittances from the Nigerian diaspora, who send money home to support their families and communities during the festivities. This influx of foreign currency has provided some respite to the naira, which has faced significant pressure in recent months due to reduced foreign exchange earnings and rising demand for dollars in the domestic market.

Speaking on the development, a foreign exchange dealer, who wished to remain anonymous, noted that the improved supply of dollars has calmed market fears of further depreciation. “The inflow of dollars from diaspora remittances has had a stabilizing effect on the market. Coupled with the Central Bank’s intervention in the official window, we’ve seen the naira make some gains,” the dealer said.

In addition to seasonal inflows, some market participants believe that the recent measures taken by the CBN to curb speculative trading have contributed to the naira’s appreciation. Earlier this month, the apex bank intensified its oversight of foreign exchange transactions and warned market operators against engaging in activities that could further weaken the local currency.

Despite the Naira’s recent gains, economic analysts caution that sustaining this momentum will require long-term structural reforms. “While the seasonal dollar inflows are welcome, they are a temporary solution. To achieve a stable and competitive exchange rate, Nigeria must address the underlying factors driving demand for foreign exchange, such as import dependency and low export earnings,” said Dr Ifeoma Nwankwo, an economist based in Lagos.

The Central Bank of Nigeria (CBN) has repeatedly emphasized its commitment to ensuring exchange rate stability. In its last Monetary Policy Committee (MPC) meeting, the CBN outlined strategies to increase non-oil export revenues and diversify foreign exchange sources. These efforts, if successfully implemented, could reduce pressure on the naira in the medium to long term.

Meanwhile, businesses and consumers are hopeful that the naira’s appreciation will translate into lower costs for imported goods and services, especially as the holiday season approaches. However, some traders in the black market expressed concerns about a potential rebound in demand for dollars in the coming weeks, which could reverse the naira’s recent gains.

As Nigeria continues to grapple with economic challenges, the naira’s performance in both official and parallel markets will remain a key indicator of the country’s financial health. For now, the currency’s appreciation offers a glimmer of hope for a more stable exchange rate in the near future.

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