Naira Depreciates Over Fresh FX Demand Pressures
The imbalance between foreign currency demand and supply in the official market dragged the Nigerian naira backward from consolidating on its previous day’s gain ahead of Nigeria’s Eurobond payment next week.
The Nigerian local currency recorded a weight loss at the investors’ and exporters’ fx window on Thursday as FX demand outweighed market supply, causing the naira to give up the gain it had booked midweek.
Also, Nigeria’s foreign currency shortage worsened the FX spot rate at the parallel market at the same time. Traders at Lagos Bureau de Change said they saw an increase in requests for US dollars for offshore transactions by individuals and corporates.
The US dollar shortage in the economy has kept market supply tight despite the nation’s high dependence on imported goods – for production and consumption. The scarcity of foreign currency in the official market coupled with a high exchange rate which has hovered between N760 -780 per greenback in the parallel market continues to drive high input costs/imported inflation.
Data from the FMDQ Exchange showed that the Naira weakened against the US dollar at the Investors and Exporters (I&E) windows, trading at N762.63 (from N742.31). In the open market, the naira depreciated by 0.70% to N786.3 from N781 per US dollar reported midweek as external reserves declined. Other major currencies rallied against the naira, but analysts expect a possible reversal of the trend.
Nigeria’s gross external reserve rallied around $34 billion, covering 6 months of imports; though there is an expectation that the balance in foreign reserves will decline further due to Eurobond settlement next week.
In the global oil market, Brent crude fell 0.95% to $75.92 per barrel, while WTI crude lost 0.90% to $71.15 per barrel. Oil futures fell on Thursday, as negative sentiment surrounding a possible economic slowdown outweighed the impact of a higher-than-expected crude inventory draw.
So far in 2023, there has been pressure on external reserves, which declined from US$37.1 billion in January 2023 to US$36.1 billion on March 15, 2023 – following interventions in the FX markets.
FX analysts said the local currency will continue to face pressure from high import costs and demand for foreign currency for services. The CBN has indicated a plan to intervene in the FX market to limit the pace of depreciation. #Naira Depreciates Over Fresh FX Demand Pressures Nigerian Treasury Bills Yield Rises to 7%
