This phenomenon has not happened since 2019. The Naira records its largest day since 2019 and since the introduction of the amended I&E (investors’ & exporters’) window. Indeed, the Naira to the U.S. dollar exchange rate increased by 6.58% to reach N742.93/$1, according to Business Insider Africa and Nairametrics.
There are a few factors that may have contributed to the naira's recent strength. One factor is the rise in oil prices. Oil is Nigeria's main export, and higher oil prices mean more foreign currency flowing into the country. Another factor is the Central Bank of Nigeria's (CBN) recent interventions in the foreign exchange market. The CBN has been selling dollars to commercial banks in an effort to stabilize the Naira.
There has also been an improvement in investor’s sentiment. There has been some improvement in investor sentiment towards Nigeria in recent months. This has led to increased demand for naira, which has also helped to appreciate its value. Additionally, FX turnover increased by a staggering 352% to finish at 156.29 trillion, which is level since June 30, 2023.
Over the last ten days, the Naira was severely weakened to the point that it triggered a supply shortage in the I&E window. When the naira weakens, it becomes more expensive to import goods into Nigeria. This is because the Naira buys fewer dollars, so businesses have to pay more for the dollars they need to import goods. This can lead to higher prices for consumers and businesses, which can discourage demand and lead to a supply shortage.
Moreover, when the naira weakens, it becomes less attractive for foreign investors to invest in Nigeria. This is because their investments will be worth less in naira terms, so they will get a lower return on their investment. This can lead to a decline in investment, which can reduce the supply of goods and services in the economy.
The appreciation in value of the Naira can help strengthen the Nigerian economy. It will impact the price of imported goods. In fact, a strong naira makes it cheaper to import goods into Nigeria. This is because the naira buys more dollars, so businesses have to pay less for the dollars they need to import goods. This can lead to lower prices for consumers and businesses, which can boost demand and stimulate economic growth.
More importantly, the appreciation of the Naira can help reduce inflation, which has been a major concern for the Tinubu Administration. A strong Naira can boost confidence in the Nigerian economy. This can make it easier for businesses to raise capital and invest in new projects. It can also attract foreign tourists and investors, which can further boost the economy.
It is essential to emphasize that the naira's strength is likely to be temporary. The CBN's foreign exchange interventions are not sustainable in the long term, and oil prices are likely to fall at some point. As a result, the Naira is likely to weaken again in the future.
Everything will depend on what the CBN does. If the CBN continues to tighten monetary policy, it could lead to a stronger naira. However, if the CBN loosens monetary policy, it could lead to a weaker Naira.