Naira Depreciates, Breaks Resistance FX Rate
The Nigerian naira depreciated steeply after a huge foreign currency outflow from the nation’s external reserves dragged the gross position lower. Exchange rate printed above N463, a level it has not crossed since 2017 when the apex bank introduced the Investors and Exporters FX window.
The key downside to an improved exchange rate includes a dearth of foreign currency inflow while rising import bills continue to impact gross foreign reserves. Analysts said sustained FX outflow continues to threaten the apex bank’s buffer for supporting the local currency from freefalling.
Today, the FX demand level on the price chart exceeds foreign currency supply across all the sources – with weak inflow from foreign portfolio investors, low remittance and inflows from exporters among others.
During the trading session, the exchange rate crossed to N465 at the official window, and back down later in the day to N463.50 at the investors’ and exporters’ foreign exchange (FX) window.
The open indicative rate closed at N461.80 to the US dollar. A spot exchange rate of N466 was used for trading within the day before demand pressures moderated, and the FX rate improved. A total turnover of US$ 175.40 million was traded at the official Investors’ and Exporters’ window.
In the first quarter, the exchange rate has stayed around N462 while the market looks towards a depreciation that will close the gap between official and parallel market rates. In 2022, exchange rate declined by 11%. Naira Lost 11% as Banks Issue New Update on FX Spending
Nigeria’s gross external reserves plunged to $35.5 billion, according to data from the apex bank. This translates to about 4% decline in the first three months of the year.
After hitting the roof at the official market, the FX rate moderated to 0.5% to N463.50 per United States dollar at the Investors’ and Exporters’ FX window. This is its first break out in the financial year 2023.
On Friday, the Central Bank of Nigeria conducted a foreign exchange auction as part of its special market intervention to keep the local currency healthy against the United States dollar.
A bi-weekly retail auction was held for invincible foreign currency demand to settle offshore trade-related obligations. The result of the sale is expected this Friday.
Analysts said it is nearly impossible for the CBN to meet bids submitted at the auction, thus unsuccessful part of the FX request will be taken to the open market.
At the Investors and Exporters FX window, rates traded around ₦461-₦462 in the first quarter, as the market remains dominated by locals looking to fund their FX obligation.
At the parallel market, speculative buying dissipated, despite initial fears of the election effect. The exchange rate held steady at ₦755 – ₦765 throughout the first quarter. At the press time, the overall gross external reserves maintained a southward dive since the year started, closing the quarter with $35.57 billion.
Regarding the liquidity concerns in the FX market, analysts at Afrinvest suggest that the focus should be on addressing capital control policies and the multiplicity of the FX window, which have hindered the inflow of FX into the economy. # Naira Depreciates, Breaks Resistance FX Rate
