Naira Crashed as Demand Levels Outrun thin Supply
The Nigerian local currency, the naira, weakens at the investors’ and exporters’ foreign exchange (FX) window amidst a hot red inflation rate that continue to spark worries across the financial markets and rising demand for foreign currencies.
Headline inflation rate hits a 65-month high last week as the June reading settled at 18.60, a steep rise when compared with 17.71% seen in May 2022. Analysts are expecting the naira to be devalued but monetary policy authority has different foreign exchange policy.
“The apex bank is only delaying the inevitable”, financial experts told MarketForces Africa while reacting to the declining purchasing power of the naira following a sustained uptrend in headline inflation.
Unfortunately, Nigeria is in the midst of a raging storm of stagflation due to weakening prices and high unemployment levels while purchasing manager index shows the private sector further decline in June.
In the just concluded week, the Naira depreciated by N2.33 against the dollar from last week’s price of N428 to close the week at N430.33 at the Investors and Exporters’ foreign exchange window. The weakening of the local currency was attributed to demand pressure by foreign exchange users amidst low accretion into Nigeria despite higher oil prices.
Also, Naira depreciated against the greenback at the parallel market by N2 week on week to close at N619 from N617 in the prior week, according to traders’ notes. At the Interbank Foreign Exchange market, the naira traded flat at N430.00 amid the Central Bank of Nigeria’s (CBN) weekly injections of $210 million.
Of the sum, $100 million was allocated to Wholesale Secondary Market Intervention Sales (SMIS), $55 million was allocated to Small and Medium Scale Enterprises and $55 million was sold for Invisibles. READ: U.S Dollar Weakens Against Major Trading Partners
Meanwhile, the Naira exchange rate rose for all the foreign exchange forward contracts according to traders’ reports. Specifically, 1 month, 2 months, 3 months, 6 months and 12 months contracts gained 1.24%, 1.76% 0.74%, 1.34% and 1.22% to close at N427.37, N432.12, N435.17, N449.55 and N472.81 in that order, according to Cowry Asset note.
Analysts said they are expecting the local currency to trade relatively calm against the greenback barring market distortions while the CBN continues its weekly FX market interventions.
Last week, the total dollar transacted or total turnover as of Thursday decreased by 73.2% to $149.07 million, with trades consummated within the N411.42 – N444.00/USD band. #Naira Crashed as Demand Levels Outrun thin Supply
