Naira Drops as Foreign Reserves Halt 5-Week Growth
More of Nigeria’s local currency, naira, was demanded to obtain a United States dollar as foreign reserves halt a five-week growth amidst myriads of developments in the economy, including a ban on fintech companies by the Central Bank (CBN).
In the just concluded week, naira weakened against the dollar in most market segments due to a stronger demand relative to available supply in the currencies market, depreciated by 0.21% to N411.67 a dollar at the Investors and Exporters foreign exchange window.
During the week, Nigeria’s foreign reserves declined 0.20% week on week to US$33.51 billion while the exchange rate also increased at the Bureau De Change and parallel markets by 0.78% and 0.97% to close at N512.00 and N520.00 a dollar respectively.
Analysts at Cowry Asset attributed the fall to an unmet demand at the official channels. At the interbank foreign exchange market, the exchange rate closed flat at N380.69 amid weekly injections of US$210 million by CBN.
Apex bank allotted US$100 million to Wholesale Secondary Market Intervention Sales (SMIS), US$55 million was allocated to Small and Medium Scale Enterprises and US$55 million was sold for Invisibles to support the local currency.
Elsewhere, the Naira to dollar exchange rate depreciated for most of the foreign exchange forward contracts: Spot rate, 1 month and 6 months closed flat at N379, N412.23 and N421.66 for a dollar respectively, according to Cowry Asset.
However, analysts noted the 2 months and 3 months exchange rates rose by 0.07% and 0.06% to close at N413.77 and N415.50 respectively while the 1-year contract appreciated by 0.12% to N434.37 a dollar.
“In the new week, we expect the Investors and exporters window foreign exchange rate to trade around current levels depending, to some degree, on the level of the external reserves.
“However we may see sustained exchange rate gap between the official channels and the parallel market amid growing demand for foreign exchange.
“In the medium term, however, we expect to see a moderation in exchange rates amid anticipated foreign currency inflows from Eurobond issuance of US$6.2 billion and the anticipated USD3.4 billion SDRs (Special Drawing Rights) from IMF”, Cowry Asset said.
At the Investors and Exporters Window, total turnover decreased by 29.2% last week from the previous to US$482.28 million, with trades consummated within the N400.00 – 420.95 a dollar band, says Cordros Capital in a market report.
“We expect improved liquidity in the Investors window over the medium term, given an expectation of increased oil inflows in line with the rise in crude oil prices and inflows from foreign currency borrowings”, analysts said.
A total sum of US$ 6.18 billion is due from planned Eurobond raise in addition to an inflow of US$3.40 billion from recently approved International Monetary Fund’s $650 billion special drawing rights.
Accordingly, analysts at Cordros Capital revealed an expectation that the naira will remain relatively range-bound at N410.00 – N415.00 a dollar at the Investors and Exporters window.
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Naira Drops Against Dollar as Foreign Reserves Halt 5-Week Growth
