The new rate represents a 10% increase compared to the N1,400 to a dollar it traded at the close of business activity on Friday.

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The naira’s quick gain at the close of April comes after a surge in demand for dollars in the parallel market driven by banks and end-users, combined with slow forex disbursement to Bureau De Change (BDC) operators by the Central Bank of Nigeria (CBN).

These factors caused the naira, last week, to fall by 23% against the dollar, recording the worst weekly naira performance since February.

Currency dealers had earlier attributed the moderation in the naira’s bullish momentum to the CBN’s sluggish pace of disbursement.

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They observed that some BDCs received dollar disbursements in small amounts, while other BDCs did not get dollars for almost two weeks following naira payments to the Nigerian apex bank.

EFCC intensified clampdown on currency speculators

The fortune of the naira took a new turn as the Economic and Financial Crimes Commission (EFCC) launched an additional offensive against currency traders and online platforms that manipulated the value of the naira.

According to the federal government agency, 34 alleged currency speculators were taken into custody by its agents affiliated with the Taskforce on Currency Mutilation, Dollarization of the Economy, and Forex Malpractice on suspicion of engaging in foreign exchange fraud.

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Additionally, the EFCC has been granted the authority to block 1,146 accounts linked to an ongoing investigation for “offenses of dealing in unauthorized foreign exchange, money laundering, and terrorism financing,” thanks to an order from the Federal High Court.

The Nigerian Senate, through its Committee on Finance, demanded that all relevant parties take coordinated measures to safeguard and maintain stability. The lawmakers emphasized that coordinated efforts are urgently needed to address the instability and ongoing depreciation of the naira.

Dollar shows stability amid U.S. Fed interest rate decision

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The dollar index was marginally within its five-month high as the dollar posted significant gains for April, as most predictions of an early rate drop by the Fed had been priced in by markets.

At the time of writing, the Dollar Index, which compares the value of the US dollar to a basket of six major currencies, decreased from 105.8 to 105.77 index points.

Bullish wagers came to a head on Friday when the Fed’s favorite inflation indicator, the PCE price index, showed higher-than-expected March readings.

The Fed meeting is now the main event of this week. The central bank will likely maintain stable rates and possibly present a cautious perspective, considering the recent volatility in U.S. inflation.

Market estimates for the timing of the first interest rate cut have been pushed back to December due to elevated inflation, robust activity, and positive job figures.

We believe there is still room for a September rate reduction. However, the Federal Reserve will continue to exercise caution and indicate that interest rates will rise if inflation remains high.

The idea that higher-for-longer rates are likely to be detrimental to the naira has led most market analysts to believe that the CBN would maintain rates high to maintain investor interest in the currency.

Why Naira depreciated by 23% in 4 days — Currency dealers, analysts

A surge in demand for dollars in the parallel market driven by banks and end-users combined with slow forex disbursement to BDCs by the Central Bank of Nigeria, CBN, caused the Naira, last week, to fall by 23 per cent against the dollar, thus recording the worst weekly performance of the Naira since February.

Though the CBN came to the rescue of the Naira on Friday by intervening in the official Nigeria Foreign Exchange Market, NAFEM, hence the appreciation of the Naira in the parallel market on Friday, currency dealers and analysts were uncertain about the fortunes of the Naira this week, citing pace and speed of CBN intervention as a determining factor.

After two months of steady appreciation to N1,140 on Friday, April 19, from N1,1,820 per dollar on Wednesday, March 21, the Naira, last week, depreciated for four consecutive days by N285 (25%) to N1,405 per dollar on Thursday, April 25th.

Following the same trend in the official market, the Naira depreciated by N169.24 (9.9%) to N1,339.23 per dollar on Friday last week, April 26th, from N1,169.99 per dollar on Friday, April 19.

Financial Vanguard investigations revealed that the steady reversal in the fortunes of the Naira was triggered by a combination of factors, including sharp practices encouraged by the lower exchange rate in the parallel market.

Since the CBN resumed dollar sales to Bureaux De Change, BDCs, the parallel market exchange rate had been below the official market exchange rate. For example, on Friday, April 19, the parallel market rate at N1,120 per dollar was N64.5 lower than the official rate of N1,234.49 per dollar on that day.

To exploit this gap, banks besieged the parallel market, buying dollars at the cheaper rate and reselling to their customers at the higher official exchange rate.

Following the steps of the banks, some forex end-users also bought dollars in the parallel market, deposited them in their domiciliary account and sell to the banks at a higher official rate.

This practice according to currency dealers triggered huge demand for dollars in the parallel market and hence the 25 per cent depreciation of the Naira in four days last week.

Currency dealers also cited the slow pace of dollar disbursement to BDCs by the CBN. They noted that dollar disbursement to BDCs comes in trickles, with some BDCs not getting dollars for more than two weeks after naira payment to the apex bank.

Confirming this to Vanguard, President, Association of Bureaux De Change Operators of Nigeria, Dr. Aminu Gwadabe, said: “The depreciation of the dollar was caused by two factors. The first was that people were buying from the open (parallel) market, depositing the dollars in their domiciliary accounts and sell in the interbank market and this is because the open (parallel) market rate is always lower than the interbank market rate.

“The second factor is that we have seen the resurgence of Person-to-Person, P2P, where hedging, margin trading are taking place.

“After nipping in the bud of Binance, other platforms sprang up. And you know transactions in those platforms are purely speculative. The likes of Binance can only be profitable at the expense of naira depreciation because it is a market that you buy low and sell higher.”

Investigation also revealed the situation was aggravated by the absence of CBN intervention in the official market for some weeks while inflow from Foreign Portfolios, and FPIs also dwindled.

Explaining this development, Nnamdi Nwizu, Co-Founder of Comercio Partners, a Lagos-based investment bank, said: “Until yesterday (Friday) when they intervened, CBN had not intervened in the interbank market for weeks, and inflows were drying up.

“Also forex demand that waited for Naira to strengthen (appreciate) seems to be filtering through now, both local and FPI’s.”

On the outlook for the Naira in the coming weeks, Nnamdi said: “A lot depends on if the CBN continues to intervene in the market to ensure that they don’t lose control of the market. And also if we start to see renewed FPI flows.”

In a bid to arrest the depreciation of the Naira, CBN intervened in the official market on Friday. It also increased the speed of dollar disbursement to the BDCs, while also stepping up enforcement activities with its monitoring task force which visited some BDCs and parallel market locations in Abuja and Kano on Friday.

As a result, the Naira appreciated in the parallel market on Friday to N1300 per dollar from N1,405 per dollar on Thursday.

Confirming this development, Umoru Ahmed, a currency dealer based in Lagos Island said: “The naira was traded at N1,500 this morning which I bought. There is no inflow of dollars like before and not all the BDCs have access to dollars especially if they registered late.

“The rate later crashed today to N1,300 per dollar for selling and N1,250 for buying.

“This is because the CBN’s task force stormed the market today arresting many black market traders which led to many operators reducing their price to sell off their dollars as they don’t know what the market will be like tomorrow.”

Similarly, Isa Yahaya, a currency dealer in Ikeja said: “In Ikeja today, we bought at N1,320 and sold at N1,350. But the market opened today at N1,450 per dollar of which I bought a dollar for N1,550.

“But we received a hint that the CBN’s task force was arresting many black market traders. This led to the appreciation of the naira because we just wanted to quickly sell what we had and wait till tomorrow to see what the market holds.

“The increase in the rate is due to demand pressure. The number of people demanding for dollars is higher than those selling.

“So it is difficult to meet the demand as we do not have access to buying from BDCs talk of from the CBN.”

Also confirming this development and expressing optimism that the naira will further appreciate this week, Gwadehe said: “There is a turn of events now. Naira is appreciating as we speak, the rate has come down to N1,250 – N1,270

“Now the rate is going down due to a combination of factors. The CBN has intervened today at the NAFEM market. Dollar sales and disbursement to BDCs have been coordinated and streamlined for efficiency and liquidity.

“The securities agencies have swooped on those illegal behaviours, arrests were made today in Abuja and Kano. So all these factors are playing a bigger role because all the behaviours that have no economic value have been checkmated and streamlined. So I believe appreciation of the Naira cannot but continue.”

Speaking further, Gwadabe called for an executive order to deposit their holding into a non-exports domiciliary with silent sources requirement of an amount below # 50k for 3 months.

He also called for the creation of investment bonds for Nigerians in the Diaspora without tax charges.

Nairametrics/Vanguard