Naira faces mixed sentiments amid strong FX demand

The naira ended last week on a mixed note across official and parallel markets, reflecting ongoing volatility in Nigeria’s foreign exchange landscape.

At the Nigerian Foreign Exchange Market (NFEM), the currency gained marginally by 0.01%, closing at ₦1,533.57/$ compared to ₦1,533.74/$ the previous week. However, at the parallel market, the naira weakened by 0.52% to an average of ₦1,545/$1, according to the latest Cowry Asset Management weekly report.

The parallel market decline was attributed to heightened forex demand, driven largely by businesses, individuals, and seasonal travel pressures amid persistent market illiquidity.

Liquidity Remains Key Challenge

Speaking with The PUNCH, Aminu Gwadabe, President of the Association of Bureau De Change Operators of Nigeria, identified liquidity shortages as the main driver of naira volatility.

“Liquidity is the bottom line. The spike in the market is due to limited supply, increased traveller demand, and other pressure points,” Gwadabe explained.

This comes as Nigerian banks recently resumed allowing naira debit cards for international transactions — a reversal of the 2022 policy that had barred such usage.

Gwadabe also noted a widening spread between the official and parallel market rates, a trend that had previously narrowed in recent weeks, dampening speculative activity.

Outlook for the Naira

Analysts at Cowry Asset Management expect the naira to maintain marginal gains in the coming week, supported by the Central Bank of Nigeria’s (CBN) interventions in the forex market.

However, they warned that global trade tensions, oil market volatility, and falling crude prices could still exert pressure on the local currency.

Similarly, AIICO Capital noted that the CBN’s clearance of all outstanding FX forward contracts has strengthened market confidence, helping to stabilise rates at the NFEM.

CBN Uncovers Irregularities in FX Forwards

On Thursday, the CBN announced the completion of a forensic audit of FX forward contracts, revealing significant irregularities in their execution. Findings included:

• Mismatched company names between approved sales results and the Form M portal.

• Approved FX forward sales exceeding the total value of the corresponding forex form.

• Sales for non-permissible import items, including unauthorised companies importing milk.

• Vague import descriptions and transactions without demand documentation.

• Incorrect or blank forex form numbers and rejected Form A applications with approved sales.

• Sales values higher than the actual cost of imported items.

The CBN confirmed that all valid claims have been settled and signalled plans to pursue legal action against violators. The apex bank also declared that the matter of undelivered forward contracts is now concluded and closed.