Naira Depreciates ‘Back2Back’ Amidst Nigeria’s $6bn Oil Debt
The naira has seen back-to-back depreciation across foreign currency markets due to sustained US dollar demand pressure. A slew of currency analysts have predicted a bleak outlook for the naira following confirmation of $6 billion in debt owed by Nigerian National Petroleum Corporation Limited to fuel suppliers.
The obligation is expected to put pressure on the nation’s external reserves. Recall that the Federal Government directed revenue generated by the privatised state oil company to the Central Bank of Nigeria (CBN).
NNPCL also arranged an oil back loan of more than $2.2 billion with Africa Import –Export Bank to boost the nation’s external reserves amidst an unending FX liquidity challenge.
Meanwhile, the market is currently waiting for the Debt Management Office to announce the results of its $500 million domestic US dollar bond sold to retail investors in August.
The latest pressure on the exchange rate in the FX market was driven by the weak US dollar volume in the official that was available for transactions versus rising demand for foreign currency. Analysts have projected that the naira exchange rate would spiral downward in the month except for the Central Bank of Nigeria’s (CBN) retail FX auction.
Broadstreet FX experts told MarketForces Africa in a discussion that the latter part of the year is often associated with increased demand for foreign currency. The FX crisis would deepen as demand for business travel and personal travel allowance would rise strongly, analysts said, adding that seasonal effects could have a negative run on the exchange rate.
On Tuesday, the naira lost ground against the US dollar in the official market, sliding by 1.61% to close at ₦1,611.34 per US dollar. Market participants witnessed similar experience in the parallel market where the naira depreciated slightly to ₦1,625 per US dollar, losing N5 on each dollar from the previous day rate.
In August, the naira recorded marginal appreciation amid minimal volatility, supported by FX inflows that raised the balance in the supply side. The CBN’s retail Dutch Auction (rDAS) helped maintain stability with $876.26 million sold at ₦1,495 per US dollar to 26 dealer banks out of $1.18 billion in total bids from 32 authorized dealer banks.
As a result, the naira appreciated by 0.63% month-on-month to ₦1,598.56 per USD in the NAFEM window and by 1.57% month-on-month to ₦1,602.58 per USD based on NAFEX fixing. However, in the parallel market, there was a slight depreciation, with the naira losing approximately 0.78% month-on-month to ₦1,615.35 per US dollar.
Additionally, gross external reserves decreased by 1.30% month-on-month, from $36.80 billion at the end of July to $36.32 billion at the end of August. Analysts at AIICO Capital Limited anticipate that the $500 million domestic dollar issuance will be oversubscribed, thus bolstering FX market liquidity.
Analysts said demand for foreign currencies will continue while the CBN seeks ways to stabilize the market.
Crude oil prices dropped today, wiping out all gains for the year due to a potential increase in supplies and a decrease in demand. Brent prices decreased by 4.42% to $74.09, while WTI prices fell by 3.89% to $70.69. Additionally, gold prices also saw a decline of 0.41%, reaching $2,517.30 per ounce. #Naira Depreciates ‘Back2Back’ Amidst Nigeria’s $6bn Oil Debt CBN Defends Naira with $39m in Forex Market
