The recent rally of the Nigerian naira in both official and parallel markets is expected to continue due to strategic measures taken by the Central Bank of Nigeria (CBN) to stabilise the local currency.
Dr. Aminu Gwadabe, President of the Association of Bureau De Change Operators of Nigeria (ABCON), stated that the CBN is increasing dollar liquidity in the market while simultaneously mopping up excess cash through interest rate hikes to maintain naira stability.
Just a week ago, the naira crossed the threshold of N1,350/$1 in the parallel market but has since strengthened to N1,035/$1.
Data from FMDQ Exchange indicates that at the official Investors and Exporters (I&E) window, the naira rallied to N776.14/$1 on Friday, with a transaction volume of $99 million.
Gwadabe explained that the ongoing naira rebound is the result of the CBN’s dual approach of increasing dollar liquidity while mopping up the naira through interest rate hikes.
This approach has made forex speculators face greater risks of losing their funds.
While acknowledging that speculators are keen on the sustainability of the current naira strength, Gwadabe emphasised that the current market trend is characterised more by panic selling than panic buying.
He encouraged the CBN to provide further clarifications and implement the recommendations made by ABCON to ensure naira stability in the foreign exchange market.
Additionally, Gwadabe suggested that the CBN should involve Bureau De Change operators (BDCs) in the foreign exchange market due to their role in meeting the needs of the critical retail sector.
He highlighted the importance of BDCs in the demand measures, transaction monitoring, and client utilisation, adding that they have the potential to correct and moderate market fluctuations.
The increase in Nigeria’s foreign reserves can be attributed to higher demand for crude oil, the country’s major export commodity, partly due to escalating tensions in the Middle East and rising inventories in the United States.
Gwadabe advised caution when dealing with the naira, as the CBN appears committed to sustaining the market’s recent gains.
Source: The Nation