Naira, External Reserves Plummets amidst Erratic FX Intervention
The naira plummet by about 1.7% at the beginning of the week as demand and supply patterns signal FX liquidity challenge has failed to get better in the local currency markets.
Despite Central Bank of Nigeria’s (CBN) efforts to boost US dollar volume in the FX market, the naira has remained significantly under pressures. However, analysts said the local currency will continue to suffer without clear cut FX sales direction to boost the supply side.
The CBN has currently no calendar for its FX interventions, while naira has seen no significant uptrend due to intermittent US dollar sales to banks. “There is currently no pattern or solid policy to defend the naira which the apex bank claimed is grossly undervalued”, analysts said in a chat with MarketForces Africa requesting not to be mentioned.
According to data from the FMDQ Securities Exchange platform for daily FX spot rate quotations, the naira depreciated against the US dollar by 1.69% to close at ₦1,596.60.
This exchange rate direction suggests that the US dollar volume demanded by FX users in the official window overwhelmed the supply side, causing the local currency to be priced lower at the Nigerian autonomous foreign exchange market.
The naira needs to be defended as an import nation, analysts said, noting that other big economy like Japan has been boosting the currency against the dominant US dollar.
Meanwhile, gross external reserves continue to reduce after flurry of FX inflows lifted the balance to 18-month high early in August 2024. Nigeria’s foreign reserves dropped to $36.437 billion, and analysts said significant part of the amount has been pledged by government, and its agency for various deals.
The weak external reserves net position makes it difficult for the current CBN leadership to support the naira with constant FX sales interventions to boost the supply side. Last week, the CBN said remittance flow through the official window hit a historic high of $553.0 million in July.
Based on the assessment of CBN’s historical data, the July remittance print is the highest inflow through the official channel in 11 months and represents a 130.0% year-on-year surge over the corresponding period in 2023.
While the market has seen huge inflows from time to time, the naira exchange rate has been unimpressive since April 2024 when the naira was rated as the best performing currency across the world.
In the parallel market, the naira depreciated by 0.31% to close at ₦1,605 per US dollar as invisible payment remain elevated, supported by Nigerians imports tastes.
After bearish performance, oil prices gained today amid reports of a production halt in Libya and after Israel and Hezbollah traded a barrage of strikes across the Lebanon border.
Brent prices rose by 2.75% to $81.19 and WTI prices increased by 3.01% to $77.08. Gold prices increased by 0.11% to $2,549.10 per ounce. #Naira, External Reserves Plummets amidst Erratic FX Intervention Investors Gain N36.7bn as OKOMU, ETERNA, OANDO Rally
