Exchange Rates Outlook Scary as Naira Crashes Sharply
The Nigerian local currency, the naira, recorded a sharp depreciation on Tuesday as demand for foreign currency accelerated above the previous trend despite US dollar scarcity. The latest demand shock experienced in the official window has set a new price band for the currency to trade.
This is coming after the Central Bank of Nigeria (CBN) reversed its failed FX restriction policy on 43 items the authority ’emotionally’ banned in 2015. Reacting to the worsening official exchange rate, analysts expressed concerns that the naira has again crossed a new red line which would form the basis for assessing its performance against the US dollar, British Pound and Euro among others.
“Recovery is unlikely in the immediate as demand shock has shifted spot rate pricing forward. It will require significant US dollar inflows to upturned the fortune of the local currency”, research analysts at LSintelligence Associates told our reporters in reaction to the worsening rates.
Traded near N849 per United States (US) dollar, the exchange rate hit a new low at the official window after it traded near N1,000 during the day in the forex market. This is the sharpest daily decline in years, financial experts told MarketForces Africa. Since the naira was floated in June, exchange rates have been worsening across FX markets due to the apex bank’s inability to boost forex supply.
Data from FMDQ showed that the Naira plunged by 8.90% at the Investors and Exporters window, closing at N848.12 to the dollar from N778.80 per dollar the previous day after a failed FX policy reversal. According to FX data from Refinitiv, the exchange rate hit N980 per greenback at the intraday session as persistent dollar shortages plague the currency market.
In an effort to stabilise the currency, the Central Bank of Nigeria (CBN) said it will intervene in the foreign exchange market occasionally to boost liquidity. Last week, the monetary authority announced it had ended an eight-year ban on some items that were restricted from accessing dollars on the official market.
Due to rising demand to meet respective import or foreign payments, the exchange rate in the parallel market worsened further, and now the gap between the two markets settled at N212. A slew of analysts said they have started projecting that the local currency would hit N1,000 at the official window due to the rate at which the local currency is falling.
In the open market on Tuesday, the US dollar was sold to FX users at N1,060 while external reserves remain at about $33.2 billion. Despite higher oil prices, the obligation associated with the country’s oil swap has reduced inflows into external reserves.
MarketForces Africa reported that oil prices are rising as energy traders remain in wait-and-see mode to see if the US diplomatic efforts will be successful in preventing the Israel-Hamas conflict from turning into a wider regional war.
Brent price traded around the $90 mark despite the news within the market that the U.S. plans to ease sanctions on Venezuela’s oil exports. The West Texas Intermediate (WTI) traded slightly above $85 per barrel while the Brent Crude price hung around the $89 market on brewing positive sentiments. #Exchange Rates Outlook Scary as Naira Crashes Sharply Naira Devaluation Deepens Economic Crisis in Nigeria
