Naira Depreciates by 4% as Forex Demand Increases
The Nigerian naira exchange rates worsened across the currency markets on Monday amidst lingering FX challenges in the economy. At the official window, the naira depreciated by more than 4% as demand pressures shifted the exchange rate curve.
Last week, the naira regained strength across the foreign exchange market as a result of a slowdown in forex pressures, supported by large inflows into the Investors and Exporters window in September.
US dollar scarcity in the economy became well pronounced due to poor FX policy choice under the erstwhile governor of the Central Bank of Nigeria (CBN) who instituted capital control measures. Such protectionism reduced the ability of foreign investors to repatriate funds abroad while the apex bank inflated net external reserves to manage the subtle FX crisis.
Following a decision to devalue the naira in June, exchange rates have been unstable at both organised and open FX markets as a result of weak US dollar inflows into the economy.
“Foreign inflows remain at a pre-pandemic level. Exchange rates have been weakening as forex demand by Nigerians has surged above what the supply side can meet. In the foreign exchange market, the Naira depreciated by 4.27% in the Investors and Exporters) window, closing at N773.54 to the dollar from N741.85 per dollar the previous day.
Also, rising demand by invisible FX users in the parallel market shifts the exchange rate curve. After soft moderation that was achieved last week, the exchange rate declined to N1,004 against the US dollar. #Naira Devaluation Deepens Economic Crisis in Nigeria
The market is awaiting the magic wand of the CBN Godwin Yemi Cardoso to stabilise the worrisome decline in the value of the Nigerian naira. Cardoso’s team projected an external reserve target of USD50-60 billion and monthly inflows of USD6-8 billion would be required to stabilize the exchange rate.
The Nigerian Autonomous Foreign Exchange Fixing (NAFEX) rate traded within the range of N700-N819.9 but closed at N741.9 on Friday, according to Coronation Research. Analysts said this points towards an appreciation of +1.8%% or N13.4 over the week. In the forwards market, fx traded within the range of N761-N819, analysts said in their reports.
“Based on our channel checks, we note that in the parallel market, the Naira closed at an average of N1000 per US dollar. Therefore, the gap between the NAFEX and the parallel market rate is 34.8%”. According to data from FMDQ, NAFEX turnover declined by -30.9% or USD146 million over the week to USD326.4 million on Friday.
The NAFEX window recorded an inflow of USD399.6 million with the CBN accounting for 3.2%, FPIs accounting for 2.2%, non-bank corporates accounting for 47.1%, exporters accounting for 37.4%, and others accounting for 10.1%.
Amidst the oil market rebound, Nigeria’s external reserves declined by -0.03% or USD10.6 million to USD33.2 billion as of Friday’s close.
