The naira yesterday closed at N445 to dollar, N15 weaker than N430 traded on Monday.
The local currency is expected to firm up in the days ahead as the impact of the $180 million intervention from the Central Bank of Nigeria (CBN) and plans to sell Personal and Business Travel Allowances begin to add up. Naira has been rallying against the dollar in the last one week at the parallel market.
However, JPMorgan Chase & Co. and Renaissance Capital have said the naira rally, sparked by increased sales of foreign-exchange forwards and looser capital controls, is contingent on the central bank continuing to sell down its reserves.
They believe that until the CBN devalues or makes a clear switch to a free-floating currency, the country will struggle to lure back foreign investors.
Forwards suggest more declines to come, investors are shunning naira assets, and a web of alternative exchange rates only adds to the confusion over the currency’s real value.
After sales of $600 million of one- and two-month forwards last week, the naira’s black-market rate rose 13 percent to 460 per dollar from an all-time low of 520. That narrowed the gap with the official rate, which the central bank has kept at around 315 since August, to the smallest since September.
Even after the rebound, the currency remains 30 per cent weaker on the black market than on the official one. Naira forward contracts maturing in three months trade at 355 per dollar, suggesting the currency will drop 11 per cent in the period. Naira six-month contracts are quoted at 382.