THE naira posted its biggest rebound in 196 days on Monday, September 15, maintaining an edge over 10 currencies in the world, including Vietnamese dong and Indonesian rupiah, thanks to a slowing demand and an improved foreign exchange liquidity.
The currency climbed to 1,497.46/$ at the official market, compared with 1,530/$ on August 15 in the Nigerian Foreign Exchange Market (NFEM). The last time it traded close to this level was March 3 this year, when it weakened to 1,498/$- exactly 196 days earlier.
This shows that the Central Bank of Nigeria (CBN)’s reforms are working, as the economy stabilises amid a growing investor confidence, analysts say.
Naira vs 10 currencies
Nigeria’s currency is stronger than several currencies in the world, including the Vietnamese dong. Dong exchanges for N1 at VND 17.535. But one United States dollar can buy products worth 26,455 VND in Vietnam as against goods worth N1,497 in Nigeria. Experts say Vietman deliberately sets its curency at low rates to export more of its products.
“SBV is likely to allow the dong to gradually weaken over time, hopefully in a orderly fashion,” said Michael Wan, a currency strategist at MUFG Bank in Singapore, as quoted by Business Times. “But it wouldn’t want the weakness to be too sharp, and it will definitely be ready to intervene to prevent that.”
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The naira is stronger than the currency used by the people of Lao People’s Democratic Republic known as the Laotian Kip (LAK). One naira exchanges for 14.49 LAK, with one dollar swapping for 21,681.02 LAK.
Indonesia rupiah exchanges for N0.091 but goes for 16,401.67 IDR to a dollar. An economist at the Institute for Development of Economics and Finance (INDEF), Mr Andry Satrio, said the IDR is weakening owing to high inflation in the United States and war in the Middle East.
“The main factor is high inflation in the US, which has prompted the (Federal Reserve) to raise its interest rate and there are no signs it will be lowered,” he told Channel News Asia. The Federal Reserve will, however, cut the interest rate on September 17.
Analysis further shows that one naira can buy 8.61 Syrian pound (SYP). A dollar exchanges for 11,530 SYP as against naira’s 1,497. Similarly, N1 exchanges for 8.25 Uzbekistani Som (UZS) as against 12,350.22 UZS to a dollar. On the other hand, the Nigerian currency exchanges for 8.50 Guinea Franc(GNF), but the dollar exchanges for 8,676.04 GNF.
More so, 1 Nigerian currency can buy goods worth 4.77 Paraguayan guarani (PYG) but a dollar can buy goods valued at 7,108 PYG. Counterfeiting has been a major problem of the currency. Its people are still poor, though the poverty rate has declined in the last decade.
It is a land of opportunity but the World Bank Senior Economist, Mr Pui Shen Yoong, wrote that, “Paraguay has the potential to accelerate its transition to a high-income country. To achieve this, the country needs to implement a comprehensive strategy that addresses current challenges. We are confident that, with the right policies and investments, Paraguay can use its full potential and create a better future for all its citizens.”
Furthermore, Madagascar uses Malagasy Ariary (MGA), which exchanges for 2.94 MGA to 1 naira. A stronger dollar can buy goods worth 4,405.75 MDG in the African nation.
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The Cambodia riel (KHR) exchanges for 2.68 to N1 and 4,008.29 KHR to a dollar. Also, the Congolese Franc (CDF) can be swapped for N1.91 as against 2,876.21 CDF to a dollar. Cambodia uses the dollar to make major purchases, which is hurting its local currency, making it a partially dollarised nation. Wages are even paid in US dollars, hurting the economy.
Foreign reserves impact
The naira rally is driven by the growing foreign exchange (FX) reserves, which hit $41.845 billion on Tuesday. Nigeria’s gross external reserves also rose by $357.84 million or 0.87 percent to $41.845 billion on September 16 as against $41.66 billion on September 11. The growth in foreign reserves is attributed to rising dollar inflows from portfolio investors and other entities.
Dollar inflows stood at $550.90 million last week, lower than $567.20 million in the the previous week, according to Coronation Merchant Bank Research.
Foreign portfolio investors (FPI) made the highest contribution of $303.8 million, representing a 55.15 percent of the total. They were followed by exporters who contributed 17.61 percent. Non-bank corporates brought in $91.3 million, representing 17.57 percent of inflows, with other corporates accounting for $23.8 million (4.32 percent).
