Nigeria’s foreign exchange (FX) reserves continued their upward trend this week, albeit at a slower pace, with the gross reserves increasing by USD12.06 million week-on-week (w/w) to reach USD36.85 billion as of August 8. This modest growth reflects ongoing efforts by the Central Bank of Nigeria (CBN) to bolster the country’s FX reserves amidst fluctuating market conditions.
A key factor easing pressure on the naira this week was the successful Retail Dutch Auction (RDAS) conducted by the CBN on Tuesday, August 7. The auction, which saw USD876.26 million in bids successfully met out of a total of USD1.18 billion, played a crucial role in stabilizing the currency. As a result, the naira appreciated by 2.7% w/w, closing at NGN1,574.20/USD at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
Despite the currency’s appreciation, total turnover at the NAFEM window decreased significantly, plunging by 58.7% week-to-date (WTD) to USD472.67 million as of August 8. Trades within the window were conducted within a wide band, ranging from NGN1,520.00/USD to NGN1,628.00/USD, reflecting varying levels of market activity.
In the forwards market, the naira’s performance was mixed. The rate for the 1-month forward contract increased slightly by 0.2% to NGN1,622.10/USD, while the 3-month contract remained unchanged at NGN1,684.56/USD. However, the rates for the 6-month and 1-year contracts declined, falling by 0.9% to NGN1,773.76/USD and by 1.9% to NGN1,959.58/USD, respectively. These movements suggest varying levels of market expectations regarding the naira’s future stability.
The naira’s appreciation this week is largely attributed to reduced demand pressure following the CBN’s successful RDAS auction. Additionally, increased foreign portfolio investment (FPI) participation in the FX market, spurred by the CBN’s efforts to stabilize the naira, contributed to boosting investor confidence.
Looking ahead, while FX liquidity is expected to remain fragile in the short term, financial Experts say the naira is likely to experience less volatility due to the moderation in demand pressure. The CBN’s continued interventions and market management strategies will be key in maintaining this stability as the country navigates ongoing economic challenges.
