(Bloomberg) -- Nigeria’s currency is extending its phase of relative stability as a devaluation in January and other reforms help to reduce the role of the parallel market for dollars.

The naira has traded in a narrow range between 1,473 and 1485 per dollar this month, according to FMDQ data compiled by Bloomberg. That has sent its 10-day rolling volatility to the lowest in a year and its 100-day swings to the least since November. 

The newfound calm is a mini victory for President Bola Tinubu’s yearlong reforms that loosened controls on the currency and brought its value closer to street rates. Now, dollar inflows are reducing buyers’ needs to load up on foreign exchange, thus curbing demand and price distortions, according to strategists. 

“FX demand has slowed and onshore market participants seem more confident in the naira,” Samir Gadio, head of Africa strategy at Standard Chartered Bank in London wrote in an email response. “There is limited front-loading of demand,” he said.

 

Nigeria has battled years of acute foreign-exchange scarcity and instability arising from low crude production and a lack of economic diversification. The local unit has lost about 70% of its value since Tinubu’s government introduced the policy changes. The naira proved to be quite volatile between mid-April and May, but improving market confidence has helped to moderate the swings, Gadio said.

The naira closed at 1,485 on Thursday, according to FMDQ. That compares to 1,488 on the parallel market, according to Abubakar Muhammed, chief executive of Forward Marketing Bureau de Change Ltd. The official rate has been within 2% of the parallel market this month, down from 20% in May.

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The Central Bank of Nigeria at its Monetary Policy Committee meeting last month raised its key interest rate to a record 26.25% in a bid to attract dollar inflows, end volatility and curb inflation, which accelerated in May to a 28-year high of 33.95%. The regulator is combining a total 750 basis points of hikes this year with heavy mop-up of naira liquidity through regular bond sales as well as dollar inflows from external lenders to stabilize the market.   

Fresh Flows

Africa’s most populous nation last month obtained $925 million from Afreximbank been the final tranche of crude oil-backed $3.3 billion prepayment facility intended to boost the supply of hard currency on the local foreign-exchange market. The World Bank approved $2.25 billion funding to support Nigeria’s economic reforms this month which is expected to further boost foreign exchange liquidity. 

“The recent stability of the naira has been aided by lower demand pressures and inflows from Afreximbank,” said Omobola Adu, economist at BancTrust & Co. Investment Bank. Also, “the recently approved World Bank loan should provide more support for the local currency over the short to medium term, pending other potential inflows later this year.”  

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