'N700/$' - Hope rises for naira to bounce back against dollar as CBN intensifies solution, gets support

Naira is set to rebound in the coming days as the Central Bank of Nigeria (CBN) moves to clear the FX forward contract.

An FX forward contract is a bilateral agreement where one party (the seller) agrees to sell FX to another party (the buyer) at a predetermined settlement date in the future and at a strike price, which is fixed at the time of entering into the contract.

It is also a binding contract in the FX market that locks in the exchange rate for the purchase or sale of a currency on a future date.

Naira set to bounce back

ThisDay reports that apex bank has promised to clear a substantial amount of the outstanding FX forward obligations before the end of November 2023.

The move, it is believed, will usher in improved FX liquidity in the market and help ease the pressure on Naira.

A top bank official quoted in another report expressed optimism that the naira exchange rate would improve in the coming days.

The official said: “For smaller Nigerian banks and foreign banks, the Central Bank of Nigeria (CBN) has approved clearance for at least 80% of their FX forwards.

"However, larger Nigerian banks have only recently begun the clearance process, with the central bank having cleared approximately five to 10% of their FX forwards.

"The current plan is to clear 30% for these big banks in the next two weeks, injecting liquidity into the system.

"There is also a scheme of arrangement in place to address the remaining balance. Realistically, the naira's trading range should be between N700 and N800/$ if not for the speculative activities affecting the currency."

Legit.ng also reported that Saudi Arabia's Crown Prince, Mohammed Bin Salman, promised to help make available enough dollars in exchange to fix Nigeria's forex scarcity.

These two events are expected to help Naira improve in the coming days.

CBN's forex decision impact

The CBN's decision on forex backlog helped the Naira recover some of its lost value against the dollar before the momentum waned.

However, there was improvement at the end of trading on Friday, November 10, 2023, as the Naira closed at N780.14/$1 in the official market after falling to a record low of N996/$.