Reasons for Nairas appreciation against the dollar

Monday saw more gains for Nigeria in both the official and black markets with a 12% decrease in the Bureaux de Change (BDC) exchange rate to N1,117.5 per dollar, or N152.23.

Nigeria’s indigenous currency, the naira, has steadily appreciated against the US dollar over the past several weeks as the federal government has stepped up its attempts to strengthen the country’s economy.

It is important to understand some of the reasons behind the naira’s appreciation; a few of these are covered below:

1. CBN sells dollars to BDCs

The Central Bank of Nigeria (CBN) sold dollars to Bureau de Change (BDC) operators in a circular posted on its website yesterday.

The top bank directed the BDCs to sell at a spread not to exceed 1.5% above the CBN rate and said it would offer $10,000 to each BDC for around N1101 per/$.

With this strategy, the naira might appreciate in value relative to the dollar and trade for N1,117.5 per dollar.

Customers are delaying their purchase decisions as a result because they anticipate a further decline in the currency rate following the CBN statement.

2. Implementation of CBN policies

Nnamdi Nwizu, co-founder of Comercio Partners Limited, an investment bank, has stated that the naira’s consistent gain is due to the policies of the apex bank, which is managed by Dr. Olayemi Cardoso.

Nwizu said, “Factors behind the appreciation are basically around the various CBN policies implemented and the confidence it is bringing back to the market.

‘’We now have Foreign Portfolio Investment, FPI’s showing interest in Nigeria and have seen the forex backlog cleared by the CBN. Also, we have high-interest rates, making it harder to source naira to buy the dollars. All of these have contributed largely to the naira’s appreciation.”