Naira Bounces Back Against Dollar After Record Plunge

 Naira Bounces Back Against Dollar After Record Plunge

The Nigerian Naira rebounded against the US Dollar on January 31, 2024, at the official market, following a record low the previous day when it hit N1,482.57 per dollar. The domestic currency appreciated by 1.85%, closing at N1,455.59 per dollar, according to data from the NAFEM where forex is officially traded.

This gain represents a N26.98 increase or a 1.85% surge in the local currency compared to the previous close of N1,455.59. The intraday high recorded was N134.07/$1, while the intraday low was N789/$1, showcasing a wide spread of N720/$1. Forex turnover at the close of trading was $134.07 million, indicating an 85.36% increase compared to the previous day.

However, the naira closed weaker at the parallel forex market, where the exchange rate was quoted at N1470/$1, marking a 1.02% drop from the previous day. Peer-to-peer traders quoted around N1526/$1.

The Central Bank of Nigeria (CBN) responded to concerns over banks holding large foreign currency positions by releasing a circular titled "Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks." The CBN expressed worries about excessive foreign currency speculation and hoarding, introducing guidelines to mitigate associated risks. The central bank aims to manage risks effectively and prevent potential systemic challenges arising from banks holding substantial long foreign currency positions.

In simple terms, the CBN is addressing banks engaging in speculative practices, holding large forex positions in anticipation of profiting from fluctuations. This behavior exposes banks to risks such as exchange rate volatility and potential financial losses. The guidelines issued by the CBN aim to ensure prudent risk management in the banking sector.