Naira rallies as foreign reserves gained $1.04b in Q1 

The naira regained one-fifth of value in the past five weeks as increased foreign exchange inflows saw Nigeria’s forex reserves rising by $1.04 billion in the first quarter of this year.

The    reserves, which had ended 2023 at $32.912 billion, closed weekend at $33.952 billion, an increase of $1.038 billion. The build-up of the reserves came within the same period the Central Bank of Nigeria completed payment of forex backlog of $7 billion.

The naira rose by about 22 per cent in March to close at N1, 303.842 per dollar as against N1, 544.08 per dollar recorded at the end of the previous month. At the parallel market, the naira rose by about 20 per cent to close the month at N1,300 per dollar.

Analysts agreed that the forex reserves accretion and naira gain may continue in the period ahead as inflows remain upbeat.

Analysts at Financial Derivatives Company (FDC), Cordros Capital, Afrinvest Securities and Arthur Steven Asset Management, said they expected the naira to remain stable in the meantime, given the monetary stance of the CBN.

Managing Director, Financial Derivatives Company (FDC), Mr. Bismarck Rewane, said the current monetary stance suggests further stability in naira and increased investors’ confidence in the economy.

He noted that the high interest rate is expected to support investment inflows from portfolio investors, which combined with a quadruple in remittance inflows and rebounding oil and non-oil export earnings, will support external reserves.

“Essentially, the naira’s stability will continue amid higher interest rates,” Rewane said at the weekend.

He added that while it might still take some time for exchange rate gains to translate to reduced commodity prices in the open markets, “the future holds bright promises.”

Cordros Capital acknowledged CBN’s continuous efforts in the forex market, which are expected to keep the naira stable in the meantime.

Afrinvest stated that   naira would remain stable and trade within similar band over the next weeks as the apex bank continues to attract more capital inflow.

Managing Director, Arthur Steven Asset Management Olatunde Amolegbe said continuing increase in forex reserves will support current efforts aimed at fostering liquidity and stability at the forex market.  “The increase is a positive signal for improved liquidity in the forex market. This should ultimately help to stabilise the exchange rate and strengthen it further,” Amolegbe said.

President, Association of Capital Market Academics in Nigeria, Prof. Uche Uwaleke said any increase places the CBN in a stronger position to meet forex obligations as well as intervene in the forex market.

“If this development is sustained, we are likely to witness an appreciation of the naira in the forex market and more stability in the exchange rate following improved liquidity. This is one positive development capable of keeping away destructive speculators from the forex market,” Uwaleke said.

He noted that inflation rate would most likely moderate given the exchange rate pass-through to commodity prices.

With the lingering crises in Middle East and Eastern Europe amid elevated oil demand, most analysts expect crude oil price to remain substantially above Nigeria’s budget benchmark of $77.96 per barrel.

The International Energy Agency (IEA), in its latest report, increased its global crude oil demand projection for 2024 by 1.3 million barrels per day (mbpd) to 103.2mbpd.

IEA estimated that extended output cuts by Organization of the Petroleum Exporting Countries (OPEC) and its affiliates (OPEC+) would continue to moderate supply output, keeping off any major downside volatility.

OPEC+ members had extended their voluntary production cuts of 2.2mbpd into the second quarter of 2024, with expectation of further extension beyond the first half.

CBN Governor Olayemi Cardoso has outlined that ongoing efforts to strengthen the country’s forex position would lead to increased stability in forex reserves and naira.

According to him, the collaboration with Ministry of Finance and the NNPCL to ensure that all forex inflows are returned to the CBN will greatly enhance forex flows and contribute to the accretion of reserves.