Naira appreciates across FX markets amid Supreme Court ruling on old Naira notes legality



Uba Group

Demand and supply pressures in the currency market persisted last week but the value of the naira strengthened week across the board in the face of the lingering currency crunch in the economy. The Naira waxed stronger following the outcome of the presidential and national assembly elections and the recent ruling of the Supreme Court on Friday, calling for the continued usage of the old banknotes until December 31, 2023.

In the review week at the open market, the local currency edged the United States dollar as it appreciated by N4.00 or 0.53 percent week on week to close at N758/USD from N762/ USD in the previous week even dollar demand spook exchange rates across various FX segments. Also, at the investors’ and exporters’ FX window, the Naira depreciated by marginal 0.13 percent week on week to close at N461.75/USD from N461.17/ USD despite the growing FX pressure on the naira. A look at activities at the Interbank Foreign Exchange Forward Contracts market, the spot exchange rate remained unchanged at N462/USD.

Also, in an analysis of the Naira/USD exchange rate in the weekly Naira FX Forward Contracts Markets, it was all green for the Nigerian naira index across all forward contracts with appreciations reported for the 1-Month, 2-Month, 3-Month, 6-Month and 12-Month tenor contracts against the greenback by +3.76%, +1.54%, +1.14%, +2.59% and +5.00% week on week to close at contract offer prices of N467.20/USD, N476.27/USD, N486.10/USD, N512.13/USD and N543.35/USD respectively.


In the oil market last week, oil price oscillation signaled positive close on Friday and was largely boosted by disruptions from the Ukraine-Russia war on crude tanker flows, sprouting higher profits for midsize crude tankers and the U.S crude exports on the bank of ban on sea born imports from Russia. On the home front, we saw the Bonny light crude price reacted positively to factors playing in the oil market as it surged in a propelling manner by 4.4 percent or (USD3.70) week on week to close at USD87.79 per barrel to USD84.09 per barrel last week.

In the opinion of financial experts, the Naira demand pressure is expected to stay unabating following the limited supply of the local currency market and the recent ruling from the Supreme Court on Friday which renders the old banknotes a legal tender until December 31, 2023. “However, it is very unlikely for the apex to comment on the court judgment as it has resolved to phase out the old banknotes from the system in the bid to monitor currency in circulation and money supply,” analysts noted. A financial expert, Okechukwu Unegbu, commended the Supreme Court for legalising the usage of the old Nai ra noted along with the new ones.

Unegbu, a past president of the Chartered Institute of Bankers of Nigeria, said that the Naira redesign policy had inflicted avoidable pain on Nigerians. Unegbu, also a lawyer, said that the apex court’s judgement had nullified the actions of the CBN as regards the Naira redesign project. He urged the CBN to immediately take steps to release the over two trillion Naira of the old currency it had mopped up through the deposit money banks. “In other words, the currency should revert to what it was before, and every other person, including the President and members of the National Assembly should comply. “For me, it is a good decision because people have suffered. Many people could not buy food and medicines.

“The apex bank said it had mopped up over N2 trillion of the old currency, they should bring out that money through the banking system so that people can get money to move ahead and do their businesses,” he said.

Unegbu advised the CBN to execute the cashless policy in phases to avoid inflicting such pain on Nigerians, especially the rural dwellers. “There is no problem with the cashless policy but because of the state of the economy and the level of illiteracy, the CBN s h o u l d have started implementation in phases. “Cashless policy should start from urban and commercial centres like Lagos, Abuja, Port Harcourt and Kano before moving to the rural communities.

“You cannot make such a blanket decision in the Nigerian system because of the way we are. The shortage of cash is worse in rural communities, where some people have never even sighted the new notes,” Unegbu said. He urged the CBN to go back to the drawing board and design a more effective and less cumbersome implementation of cashless policy and financial inclusion initiative.

Meanwhile at the money market, the Treasury Bills primary market was quiet as there were no T-bills offered by the apex bank. Given the zero maturities, we saw NITTY rise for most maturities tracked ahead of the auction in the new week. Specifically, NITTY climbed for the overnight, 1-month, 3-month, and 6-month maturities to 2.80% (from 2.77%), 3.55% (from 3.46%), and 4.35% (from 4.19%), respectively. However, the 12-month NITTY moderated to 5.87% (from 5.88%).

Activities in the OMO space were bearish as OMO bills worth N5 billion were repaid with no refinancing from the apex bank. Given the limited inflow, NIBOR for overnight, 1 month, 3 months, and 6 months rose to 11.63 percent (from 10.90%), 11.38 percent (from 10.95%), 12.00% (from 11.75%), and 13.38 percent (from 12.40%), respectively.