CBN Devalues Naira 12.95% despite Rising Foreign Reserves
Godwin Emefiele, Governor, Central Bank of Nigeria

CBN Devalues Naira 12.95% despite Rising Foreign Reserves

An already weakened Nigerian local currency, Naira, sinks large by 12.95% in the just concluded week despite rising foreign reserves amidst lower market intervention by the monetary policy authority.

Nigeria’s naira sees a quiet devaluation at the time when dollar inflows into the country moved its external reserves near $42 billion. With a multi-tiered exchange rate management, Central Bank allowed the naira to fall big, from N380.69 to close at N430.00 per dollar at the Interbank Foreign Exchange market.

While this reduces FX spreads, it has set a new price level for dollar transactions and psychological impacts on currency market participants for possible devaluation in other windows.

The Central Bank in a move to balance the supply and demand equation devalued the local currency secondary market intervention sales during the week to N430.

Apex bank had maintained a stance that it would not devalue the local currency while promising to ramp up dollar supply for eligible transactions. However, since it ends weekly supply to bureau de change in July, Naira has been under strong pressure at the parallel market.

Some analysts attribute the rising external reserves to lower usage by the apex bank for market interventions, the same time when borrowings, increased earnings from oil apart from $3.5 billion special drawing rights raised the nation’s foreign currency reserves.

Nigeria external reserves can now cover a year imports bills, analysts told MarketForces Africa amidst projection that current account deficits would moderate.

The apex bank presence has been scarce in the investors and exporters’ foreign exchange window, thus accretion into external reserves has been strong, stable and steady in recent times.

In line with some analysts’ expectations, Naira depreciated slightly against the greenback by 0.01% to close at N415.10 to a dollar at the Investors and Exporters foreign exchange window.

Cowry Asset said the exchange rate rose – naira depreciated- by 12.95% to close at N430.00 from N380.69 per dollar at the Interbank Foreign Exchange market despite its weekly injections of $210 million.

A total sum of $100 million was allocated to Wholesale Secondary Market Intervention Sales, $55 million was allocated to Small and Medium Scale Enterprises and $55 million was sold for Invisibles.

Also, the foreign exchange rate was stable at the parallel market to close at N570.00 per the United States dollar.

Elsewhere, the Naira exchange rate rose for all of the foreign exchange forward contracts amid devaluation of the local currency at the SMIS window.

Data shows that 1 month, 2 months, 3 months, 6 months and 12 months contracts rose by 0.18%, 0.44%, 0.80%, 0.86% and 0.06% to close at N416.67/$, N420.19/$, N424.47/$, N433.50/$ and N446.53/$ respectively.

These reflect the depreciation of the local currency against the United States dollar in transactions during the week.

Looking forward, analysts at Cowry Asset Limited expect Naira to stabilise against the dollar amid rising crude oil prices and external reserves even as investors further adjust to the recently Naira devaluation at the SMIS window.

Nigeria’s FX reserves for the fourth consecutive week climbed by $636.61 million week on week to $41.75 billion, as the inflows to the nation’s external reserves outmatched CBN’s interventions across the various FX windows.

The accretion to Nigeria’s FX reserves continued this week following the inflows from the International Monetary Fund special drawing rights and recent and foreign currency borrowings of $4 billion from the Eurobond market.

At the Investors and Exporters window, total turnover or volume of dollars transacted declined by 17.5% from the beginning of the week to $702.24 million.

Analysts at Cordros Capital hinted that trades were consummated within the N404.00 – 453.15 to a dollar band.

Projecting into next week, analysts said they expect improved liquidity in the Investors and Exporters FX window over the medium term, given our expectation of increased oil inflows in line with the rise in crude oil prices.  # CBN Devalues Naira 12.95% despite Rising Foreign Reserves

Read Also: Naira Steady at Investors Window as Foreign Reserves Rise

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