Naira Outlook Dims as Market Sets Worst Rate
There is a bleak outlook for the Nigerian naira as the exchange rate depreciated significantly under the unfriendly, uninfluenced forces of demand and supply of foreign currency in the market.
Data from the FMDQ FX OTC platform showed that the Nigerian naira fell into a ditch in the foreign exchange market after the central bank maintained no FX intervention in the official market for six weeks.
The exchange rate depreciated more than 30% on Friday, signifying a spike in demand for the US dollar amidst tight market supply with the Central Bank of Nigeria (CBN) intervention to boost the supply side.
The local currency foray above N1000 has long started according to data posted by the London Stock Exchange Group during the intraday trading session recently but later reversed. The worsening rate at Nigeria’s Autonomous Foreign Exchange market (NAFEM) will worsen productivity in a country currently struggling to survive, analysts said.
Nigerians’ appetite for foreign goods remains strong despite a scarcity of foreign currency in the economy. For context, total imports grew by 33.3% year on year in the third quarter of 2023 to N8.46 trillion driven by increased domestic demand despite lingering FX challenges.
The apex bank’s move to end its dirty float could spell doom for the naira, research analysts at LSintelligence Associates said in a chat with MarketForces Africa. With uncertainties in the commodities market, the market witnessed pressures on Nigerian external reserve which has started falling successively ahead of the expected inflow worth $10 billion announced by Finance Minister Wale Edun.
Data from the CBN website showed that Nigeria’s FX reserves remained pressured this week, declining for the fifth consecutive week by $93.70 million to $32.88 billion. In their separate notes, some Broadstreet analysts said they expect year-end remittance from Nigerians in the diaspora to boost FX liquidity in the market.
Reacting to a spike in demand for the US Dollar, the naira depreciated by 30.36% % to N1099.05 in the Nigerian Autonomous Foreign Exchange Market (NAFEM). Similarly, in the parallel market, the Naira depreciated by 1.20% day-on-day to close at N1,185 per dollar due to sustained demand for the dollar.
In its market note, Cordros Capital Limited reported that total turnover at the market as of Thursday decreased by 19.5% to $487.45 million, as trades were consummated within the N700.00 – N1176.00 band. In the forwards market, the naira depreciated across the 1-month (-3.9% to N911.46), 3-month (-5.0% to N936.69), 6-month (-7.5% to N984.35) and 1-year (-7.5% to N1037.79) contracts.
“we expect FX liquidity conditions to remain tight, pending receipt of expected FX inflows. Thus, we expect the pressure on the local currency to persist in the near term”, analysts said.
The investment firm said it expects foreign investors to keenly watch the development in the FX space with regard to the expected FX inflows as guided by the authorities, CBN’s recent actions in clearing its FX backlogs, and the firm direction of short-term interest rates.
Looking ahead, Cordros Capital expects FX liquidity conditions to remain tight, pending the receipt of the expected FX inflows. Naira Devaluation Deepens Economic Crisis in Nigeria
