Naira Declines to N431 over Weak Dollar Inflows

The Nigerian naira has been beaten above N431 to a dollar due to rising demand in the Investors’ and Exporters’ foreign exchange window. Also, parallel market rates worsen as the naira was sold for N689 to a United States dollar on Wednesday, some traders said, from N686.

A slew of analysts who spoke with MarketForces Africa said the local currency is overvalued, making the exchange rate currently underpriced to manufacturers who are active participants at the window. At about $39 billion, Nigeria’s external reserves is sufficient to support the local currency, according to analysts’ note reviewed by MarketForces Africa.

Naira has been on the red line amidst demand pressures. Foreign investors have been unable to repatriate their funds as the Central Bank of Nigeria implements capital control to stem the naira from falling freely in the open market.

MarketForces Research gathered that the core problem with Nigeria’s exchange rate is an inability to generate just enough to close FX imbalances. Also, some market analysts said FX generation depends heavily on a productive base and comparative production advantage, noting that an unfavourable balance of trade means Nigeria has to get more dollars to settle import bills.

“Although the Central Bank has enough liquidity to support the foreign exchange market over the short term, we highlight that foreign inflows are paramount for sustained FX liquidity over the medium term”, Cordros Capital said in a market note.

Analysts hint that due to a tepid accretion to the foreign reserves as a result of low crude oil production level and elevated PMS under-recovery costs, foreign portfolios investment (FPIs) which have historically supported supply levels in the investors and exporters will be needed to sustain FX liquidity levels in the medium to long term.

“We think further adjustments in the exchange rate peg closer to its fair value and flexibility in the exchange rate would be significant in attracting foreign inflows back to the market”, Cordros Capital said. READ: Bonds, T-Bills Prices Drop on Sell Pressures, Naira Hits N431

The Naira on Wednesday weakened for the third day against the dollar at the Investors and Exporters window, exchanging at N431. The figure represented a decrease of 0.08 per cent, compared with N430.67 it exchanged for the dollar on Tuesday.

The open indicative rate closed at N428. 67 to the dollar on Wednesday. An exchange rate of N444 to the dollar was the highest rate recorded within the day’s trading before it settled at N431. The Naira sold for as low as N417 to the dollar within the day’s trading.

A total of 131.30 million dollars was traded in foreign exchange at the official Investors and Exporters window on Wednesday.

In its market note, Cowry Asset Management analysts think that the country’s inability to reap from high crude oil prices still speaks of some of the country’s shortcomings in FX repatriation or revenue generation from oil and other non-oil sources

“Notwithstanding the efforts by the apex bank to drive increased FX inflow, such as the Naira4dollar scheme introduced in 2021 and the RT200 FX scheme earlier this year to grow Nigeria’s FX earnings in 3-5 years, we see the current reserves levels as a healthy buffer”, Cowry Asset said.

However, analysts think the CBN’s FX demand management measures will continue as the bank represses FX demand to allow for strong growth in foreign reserves holdings. # Naira Declines to N431 over Weak Dollar Inflows