KEY POINTS
- The Naira strengthens amid improved foreign exchange liquidity.
- Market support from the Central Bank and increased inflows drive recovery.
- Analysts watch for sustained stability in Nigeria’s forex market.
The Nigerian naira has also staged a remarkable comeback, thanks to the improved activity in the forex market.
The currency strengthened after efforts to improve the dollar supply, which has helped to ease pressure on the exchange rate. According to BusinessDay, the rebound was received as good news amidst other economic challenges and inflation rates.
The enhancement of forex liquidity has inturn aided in stabilising the naira; some good news perhaps to the business and end users. The CBN has been very much involved in trying to reduce pressure on the currency through the provision of foreign exchange and measures to increase dollar supply.
CBN interventions and market adjustments
The naira has been boosted through recent interventions by the Central Bank of Nigeria. CBN intends to achieve more dollar supply through forex and introducing polices that would encourage foreign investors, which has been instrumental in the proprietary currency recovery.
As estimated by financial analysts, these measures demonstrate that the CBN is not indifferent to stabilization of the currency even in the face of economic hardships.
With the CBN strategy to supply the dollar directly to the banks, it has been made easily available to businesses and individuals thereby easing pressure on this currency and no more the usual speculative demands.
Growing investor confidence
The liberalization of foreign exchange has enhanced confidence in the country’s economy and foreign investments and remittances that in turn support the naira. The enhanced liquidity comes at a time when forex is needed to fund imports, operate and remain relevant in the market.
However, with CBN’s commitment on sourcing of more foreign currency, the outlook of naira seems more encouraging. According to financial gurus, the positive trend could be supported by the forex supply and demand equilibrium, but the CBN might have to monitor some economic factors to avoid future shocks.
Positive expectations for stability of the naira
The recent appreciation of the naira brings a bit of cheer to Nigeria’s forex market which has been characterized by fluctuation. But analysts are not as optimistic as they believe that the market will need constant support and constant supply of forex to sustain the naira rate.
However, the current global economic situation remains unpredictable and the actions of the CBN coupled with increase in forex availability suggest a more stable period is around the corner.
To summarize the paper, making forex available and ensuring an effective support of the underlying markets will lead to diminished currency pressure in Nigeria, which, in turn will have positive feedback on the consumer and business sides as well as on the stability of the Nigerian economy as a whole.
While Nigeria now faces these economic challenges, it is hopeful that sustained support for the naira will enhance a steady, healthy financial environment within the country in the short-run.
