RMB sees Nigerian naira gaining as FX forwards pressure eases
TLDR
- Nigeria's naira expected to strengthen as pressure from forward central bank foreign exchange contracts decreases.
- Rand Merchant Bank projects reduced outstanding forward contracts to $198 million by December.
- Despite recent decline, naira traded at 1,476 per dollar on Monday, indicating potential stabilization as forward contract pressures ease.
Nigeria's naira is anticipated to strengthen in the coming months as the pressure from forward central bank foreign exchange contracts diminishes.
Rand Merchant Bank (RMB) in Lagos estimates that the outstanding forward contracts will reduce to $198 million by December, following the market's absorption of $1.3 billion last week. Despite increased dollar sales by the Central Bank of Nigeria (CBN), the naira experienced a nearly 10% decline last week.
However, the naira traded at 1,476 per dollar on Monday, a slight improvement from N1,484 per dollar last Friday, suggesting a potential stabilization as forward contract pressures ease. Exchange rate volatility remains a critical concern for investors.
Key Takeaways
Liquidity in Nigeria's foreign exchange market has decreased, exacerbated by exchange rate instability and persistent inflation, deterring foreign investors. In response, the CBN recorded its highest dollar sales in May 2024, offloading $575 million to boost supply and compensate for reduced foreign investment inflows. This intervention surpasses the combined dollar sales of $340 million in the previous two months ($151 million in April and $189 million in March). Despite the significant intervention, it represented only 6.6% of the $5.89 billion market turnover for May (excluding the 31st), highlighting the scale of market activity and the challenges in stabilizing the naira.
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