How Nigeria’s reforms impact naira

The naira, Nigeria's currency, has been on a rollercoaster ride in recent months, with fluctuations at both the official and parallel markets. As the country approaches the one-year mark of the current administration, questions arise about the impact of reforms on the naira's strength and stability. Oluwamayowa Sanni, Financial Institutions Sales Manager at Stanbic IBTC, sheds light on the situation, providing insights into the reforms and market dynamics that have influenced the naira's performance. Sanni emphasizes the significant increase in foreign exchange (FX) market volume, citing a rise from $27 billion in total volume last year to $23 billion in just five months this year. This surge in FX market activity reflects growing confidence in the policies implemented by the Central Bank of Nigeria (CBN) to stabilize the currency. Offshore players have also shown increased interest, with their participation in the market rising from $1.3 billion last year to $3.2 billion in just three months this year. According to Sanni, the CBN's efforts to streamline the market and enforce compliance among players, including Bureau de Change operators, have contributed to the improved supply of FX and reduced speculative activities. The distinction between speculative attacks and seasonal demand on the naira becomes crucial in understanding market behavior. Speculative attacks, driven by expectations of devaluation, have decreased due to market stabilization efforts. On the other hand, seasonal demand, such as school fees and travel expenses, occurs predictably at specific times of the year. Sanni acknowledges the market's fragility and the challenges in determining the naira's true value, leading to occasional rate fluctuations. Despite this, recent market appreciation can be partly attributed to CBN interventions, such as injecting FX liquidity. The impending maturity of $1.3 billion in forwards on May 29 raises concerns about market impact. However, Sanni suggests that the CBN's proactive measures and liquidity injections may mitigate adverse effects, as observed in recent market trends. Looking ahead, Sanni highlights the importance of maintaining market confidence and policy consistency for further naira appreciation. While refraining from predicting specific trading ranges, he suggests a potential uptrend if current market trends and policies persist. Overall, the naira's resilience amidst market challenges underscores the effectiveness of recent reforms and ongoing efforts to stabilize the currency.