Naira Loses Steam over Pressing FX Illiquidity
With sustained negative swings, the Nigerian naira plunged further in the foreign exchange market as demand for US dollars and other foreign currencies outweighed the supply side.
The local currency has been returned to the old story line of persistent falling in the value of the local currency, engineered by rising demand for imports payment with thin FX supply in the space.
According to data from FMDQ Securities Exchange, the Naira depreciated against the US dollar by 2.72% to close at ₦1,459.73 per dollar in the official market.
In the parallel market, the Naira closed higher at ₦1,418 against the US dollar as market expects the Central Bank of Nigeria (CBN) to sell more dollars to Bureaux de change operators in the coming days.
Both forex markets are currently lacking foreign currency sufficient enough to meet growing demand, currency traders said in a chat with MarketForces Africa. The pressures mounted more at the official window despite FX sales to deposit money banks worth about $42 million at N1,200 last week.
The apex bank is more likely to come to the market next week, analysts said in MarketForces Africa analysts’ chat room. They believe that US dollar liquidity position remains the sole determinant of exchange rate directions.
Some even think the apex bank is running out of steam as negative movement in FX spot rates continue to test quality of their policy pushed amidst criticism that the authority is defending the naira.
“The willing buyer, willing seller model is for country that have strong FX receipts from international trade, not for Nigeria that depends on imports to survive”, a senior economist told MarketForces Africa in a discussion.
Information obtained from the Central Bank website revealed that the gross external reserves climbed further, reaching $32.30 billion. There have been sustained inflows into the foreign reserves in the past few days.
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