Naira Posts Small Gain Ahead of Policy Committee Meeting
The Naira posts a small gain as the exchange rate at the Investors, Exporters window settled lower at N463 versus the United States (U.S) dollar, according to data from the FMDQ Exchange platform. Spot FX rate at the window had crossed N465 per greenback in the week over an increased demand.
The Nigerian naira has lost purchasing power, and stability, and the survival of the local currency depends largely on sustained market intervention by the apex bank. Spot rate raced above N465. However, demand pressures decline as the volume of the U.S. dollar transacted fell.
Analysts say turnover decreased by 21.1% to $554.11 million on Thursday’s close. In the parallel market, the exchange rate worsened as a request for foreign currencies was channeled into the open market. The naira depreciated by N10 to close at N755.
Nigeria’s Autonomous Foreign Exchange Fixing (NAFEX) rate was quoted at N465.03 on FMDQ Exchange while players in the market kept bids between N462 and N469.
Demand for foreign currency is on the rise while the apex bank continues to control how companies, and foreign investors upstream the U.S. dollar amidst scarcity of inflows into the Nigerian economy.
Despite capital flight blockage through FX restrictions, the external reserves continue to decline, weakening the CBN buffer for supporting the naira via its market intervention.
Analysts’ notes indicate that the spot exchange rate remained unchanged at N462 at the interbank foreign exchange forward market. Naira appreciated at mid-long tenor forward contracts.
Naira is expected to trade cautiously as the CBN holds committee meetings and on the expectation that its weekly FX market intervention to defend the local currency will continue. Nigeria’s FX reserve advanced slightly by $8.22 million last week to close at $35.20 billion.
In the forwards market, the naira declined 0.7% for the 1-month contract to N477. FX rate for the 3-month contract appreciated +0.1% to N517.99 and 1-year contract gained 4.0% to N574.74 contracts. The forward rate for the 6-month contract was flat at N557.61.
A slew of foreign currency analysts across Broadstreet believes that the Nigerian naira is overvalued. By consensus, analysts have indicated a need to adjust the exchange rate to its fair value.
The CBN has switched to rationing FX following declining external reserves at a time when foreign investors’ appetite across the market stays dry – over confusing exchange rate management.
Business and Personal Travelling allowance to Nigerians were cut by half, according to deposit money banks in separate emails to customers, informing them they also need 60-day notice for processing.
In a chat with MarketForces Africa, FSDH Capital Chief Executive, Tolu Osinibi, said CBN reduced the supply of FX to Invisibles, by about half, due to the low level of its reserves.
Gross external reserves would be lowered after you factor in outstanding Forwards, Swaps, Eurobond redemption, etc., according to FSDH Capital Chief Executive. According to him, the CBN has also been delaying the settlement of its FX sales at the retail auctions.
“The sustainable solution is to adjust the FX rate -allow some depreciation- in order to be able to attract real FX flows into the system.
“There are still some credibility issues regarding whether foreign portfolio investors will trust any change in FX policy that’s introduced before the new Administration takes over at the end of May 2023”.
“Also, keep in mind that US$35 billion is gross reserves. We have no idea what the net reserves position is, that is after adjusting for all binding commitments, including Forwards sold, Swaps that have to be unwound, etc.”.
On crude production volume, FSDH Capital boss said, “We have no idea of the percentage of the quoted 1.6 million barrels per day that’s already been presold ages ago in Forward sales.
“Definitely a significant portion; so, we’ve already collected and spent a very big chunk of the money… any positive difference between the current price and the forward price is ultimately to Nigeria’s benefit.
“In any case, a very big chunk of the money was collected and spent ages ago and we’re simply meeting crude delivery obligations”. In summary, the situation is a supply-side problem that’s being tackled from the demand side; while this may seem to work in the interim, it’s not sustainable. #Naira Posts Small Gain Ahead of Policy Committee Meeting
