Market News

…CBN intervenes to ease pressure

By Chinwendu Obienyi

Despite measured intervention by the Central Bank of Nigeria (CBN), the foreign exchange market came under renewed pressure at the end of last week as a surge in dollar demand from businesses and individuals tightened supply, weakening the naira across key segments.

At the official market, the naira depreciated by 1.93 per cent week-on-week (w/w) to close at N1,380.58/$1. A similar trend played out in the parallel market, where the currency declined by 2.66 per cent to an average of N1,393/$1.

>span class="s2">Traders who spoke to Daily Sun said that, demand for dollars from businesses and individuals, largely for imports and international settlements, remained stronger than the available supply, putting sustained pressure on the exchange rate.

“The market is still largely demand-driven. There is strong need for dollars for imports and offshore settlements, but supply has not kept pace”, they said.

Meanwhile, Nigeria’s external reserves declined slightly over the same period, reflecting ongoing drawdowns to support the currency. The reserves fell to about $49.48 billion, reducing the buffer available to defend the naira at a time of elevated demand.

On the global front, rising oil prices offered some support to Africa’s largest oil exporter. Crude prices climbed amid heightened geopolitical tensions involving the United States and Iran, raising concerns about potential supply disruptions.

Nigeria’s Bonny Light crude tracked the upward trend, boosting prospects for improved export earnings and foreign exchange inflows. However, analysts cautioned that the positive impact of higher oil prices has yet to fully translate into increased liquidity in the FX market.

Cordros Research in its weekly assessment of the market, said it expect the naira to remain broadly stable in the near term, although downside risk persists.

“Despite heightened investor caution stemming from the ongoing US–Iran conflict, a relatively supportive external backdrop and elevated naira yields should continue to underpin foreign portfolio inflows, albeit at a slower pace compared to pre-conflict levels. Nonetheless, should demand pressures re-emerge, we expect the CBN to undertake measured FX interventions to contain excessive volatility”, the research and investment firm said.

Sharing the same sentiment, analysts at Cowry Research said, the naira may see some relative stability in the near term, but within a volatile range.

>span class="s2">“As such, the market may continue to experience short-term swings, with stability largely dependent on improved FX supply and sustained inflow”, they said.