Market News

As the naira continues to extend its rally, investors who hoarded dollars as a hedge against devaluation are being forced to reassess their trade, with rising yields and improved liquidity in Nigeria’s foreign-exchange market eroding the appeal of sitting on the greenback.

“We’re beginning to rethink our treasury strategy as the naira continues to strengthen. We’re seeing those that have large savings in dollars beginning to offload them,” a senior treasury manager with a Lagos-based multinational company told BusinessDay.

Historically, corporates and individuals hold large foreign exchange reserves to shield themselves against currency fluctuations and shocks. That strategy paid off in the wake of sweeping economic reforms in 2023 where the naira shed more than half of its value and 2024 when it lost 41 percent.

As the naira fell, companies with net dollar assets recorded sizable foreign-exchange revaluation gains. Banks in Africa’s most populous economy were the most beneficiaries of the devaluation of the naira as eight leading banks cupped N754.8 billion in FX revaluation gains in 2023, up 472.3 percent from N132 billion recorded in the prior year.

But that narrative has begun to change. Last year, the local currency closed at 7.5 percent, recording its first win in more than a decade, thanks to the series of policies introduced by the central bank, including the Electronic Foreign Exchange Matching Systems (EFEMS) which monitors FX transactions in real time to curb speculative activity and ensure transparency.

The naira has again gained about 7 percent year-to-date with the spread between the official and parallel markets narrowed to 0.29 percent from the N92 spread recorded two weeks ago.

That made the currency record its strongest convergence level in two years on Thursday, pushing the naira to a three-year high of N1,345 per dollar in the black market.

BusinessDay reported that by the end of last week, the naira closed stronger on the street, at N1,340 per dollar, compared to N1,346.32 per dollar at the official window.

“If we are seeing a strengthening of the currency within a parallel market rate, it simply means that those who are holding dollars are selling to save themselves from any exchange loss,” said Johnson Chukwu, chief executive officer of Cowry Asset Management.