Naira Depreciates as FX Market Condition Worsens
The Nigerian naira depreciates further as foreign exchange (Forex) market conditions continue to remain under pressure due to a sustained shortage of the United States (US) dollar in an economy that depends largely on foreign inputs for production and consumption.
With all the efforts geared toward driving foreign currency inflows into the economy, FX supply into the official window has remained below average demand. This has resulted in massive naira devaluation by the central bank. Despite a decision to weaken the local currency to converge with the open market rate in June, speculative activities continue to thrive.
The gap or FX spread between the official and parallel market rates widened above N200 on a greenback as Africa’s largest by the size of gross domestic product (GDP) foreign receipts from crude oil and non-crude oil remain unimpressive.
Again, Nigeria’s external reserve balance appears to be overrated, according to an investment firm estimate. Cordros Capital estimates on balance in foreign reserves showed Nigeria has a negative balance in the external reserves.
“Nigeria cannot make headway in foreign currency positioning without significant foreign currency inflows – it has to come from offshore investors or earned through the supply of goods and services that foreign countries are willing to pay for – the former is easier, it could take a century more to achieve the latter”, LSintelligence Associates told MarketForces Africa in a chat.
In the market, the Naira depreciated against the US dollar at the Investors and Exporters FX windows, trading at N774.77, about 4% decline from its opening spot rate of N744.10. >>> Naira Steadies as Banks Issue Update on FX Purchase
However, a slight appreciation of 0.32% against the US dollar was observed in the parallel market, where the Naira strengthened to N942 as bearish activities in the global oil market returned.
On Tuesday, Brent crude fell 1.92% to $84.56 per barrel, while WTI crude lost 2.59% to $80.37 per barrel. Oil futures were lower amid rising demand concerns stemming from dismal economic data from China, which outweighed supply constraints.#Naira Depreciates as FX Market Condition Worsens Dollar Index Decreases by 1.6% in July