Will naira firm stronger against greenback?

The Nigerian naira is showing signs of firming up, hovering around 1,000 against the US dollar in the parallel market as the Central Bank of Nigeria clears outstanding currency forwards owed to banks. This move has sparked optimism and confidence among investors and analysts in the foreign exchange market. Wonuola Akanbi, Head of Energy & Infrastructure Deals in the Global Markets department at Stanbic IBTC Bank, shared valuable insights on the current situation. The central bank's action to clear some outstanding currency forwards has been viewed positively, signaling a step in the right direction. Although not all banks have been cleared, the move has generated good confidence in the market. The recent removal of the cap on SDF rates by the central bank has also contributed to the positive sentiment in the market. Banks can now place all excess naira with the central bank at 15.75%. Additionally, the issuance of about 477 billion last week at over 21% yield has attracted some foreign investors to sell dollars in the market. This has been perceived as a show of goodwill and a move towards restoring stability in the FX market of Nigeria. Although the situation is improving, challenges remain, especially regarding outstanding issues and trapped funds of foreign portfolio investors. The reserves stand at around 33 billion US dollars, but with over 6 billion outstanding, there is still work to be done. There is a need for more intervention in the market to address these unresolved issues. Both the monetary and fiscal authorities are working to strengthen the position of the naira and boost investor confidence. On the fiscal side, efforts are being made to secure funds from sources like LNG gas proceeds, oil proceeds, the World Bank, and the Afreximbank. These initiatives aim to provide additional firepower to stabilize the currency and support the economy. While short-term fixes are essential, the focus should also be on addressing core fundamentals like oil production, export revenues, and local production costs. Improving production levels and attracting more investment in key sectors will be crucial for long-term economic stability. The monetary policy stance, particularly on interest rates, is under scrutiny. While some analysts expect an aggressive interest rate hike, others anticipate a more measured approach. The Central Bank's recent actions have already impacted interest rates, with rates expected to rise further in the upcoming auction. This transmission of policy decisions into the market indicates a proactive stance to address economic challenges. As for the short-term outlook on the naira, various forecasts suggest a trading band between 850 and 900 against the US dollar. However, price discovery and market stability are essential factors that will drive the currency's trajectory in the near future. The central bank's forthcoming framework document and efforts to enhance market transparency will play a key role in attracting investments and shaping the naira's performance. Overall, while the recent developments have instilled optimism in the FX market, sustained efforts and policy measures will be necessary to ensure the naira's stability and competitiveness in the global market.