Naira climbs to two-year peak at 1,347/$ amid strong FX inflows

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Naira climbs to two-year peak at 1,347/$ amid strong FX inflows

The naira has surged to one of its strongest levels in nearly two years, closing at 1,347.78/$ in the official market on Monday, according to a macroeconomic update by CardinalStone. The currency has appreciated by 6.9 per cent year-to-date in the official window, reflecting improved liquidity conditions in the foreign exchange market. Despite the gains, a gap remains between the official and parallel market rates. The parallel market initially traded at a 5.7 per cent premium before narrowing to about 3.2 per cent following renewed foreign exchange interventions by the Central Bank of Nigeria (CBN). CardinalStone noted that the shrinking spread indicates stronger liquidity in the official market relative to the parallel segment.Last week, the apex bank allowed licensed Bureau de Change (BDC) operators to purchase foreign exchange through authorised dealers at prevailing market rates. Each BDC is permitted to buy up to $150,000 weekly, subject to Know-Your-Customer requirements. Operators are required to offload unused balances within 24 hours to discourage hoarding, while cash transactions are capped at 25 per cent of total trades, with settlements routed through licensed financial institutions. With 82 licensed BDCs, potential monthly FX supply to the segment could reach approximately $50 millionwell below the over $1 billion supplied monthly before the COVID-19 pandemic. According to CardinalStone, this reduced volume reflects improved FX market conditions that have curbed speculative demand and redirected most corporate FX needs to the official window.The renewed supply has nevertheless eased retail FX pressure and helped compress the parallel market premium.Analysts warned that sustained currency appreciation could prompt foreign investors to rebalance their portfolios. Nigerias carry trade remains attractive among emerging and frontier markets, drawing substantial foreign portfolio investment (FPI), estimated at $12$14 billion in outstanding positions. Assuming many 2025 inflows entered the market at around N1,500/$, a strengthening of the naira to between N1,200/$ and N1,250/$ could generate currency gains of about 22.4 per cent. Such returns may heighten the risk of portfolio exits, particularly as political uncertainties build ahead of the next general elections.The post Naira climbs to two-year peak at 1,347/$ amid strong FX inflows appeared first on Linda Ikeji Blog.
Source: Naira climbs to two-year peak at 1,347/$ amid strong FX inflows