Naira Extends Free Falling, External Reserves Crossed $35bn
The naira plunged further across the currency markets over sustained US dollar scarcity. Since the monetary authority abandoned exchange rate determination to forces of demand and supply in the official window, the naira has maintained a downward trend.
Recall that the local currency experienced a touch of an angel in April when it became the top performing currency in the world at the time when the authority was selling subsidised US dollars to Bureau de Change (BDCS).
The FX intervention eased pressure on the informal market and caused the local currency to appreciate at the official window. However, the Central Bank of Nigeria (CBN) is of the view that FX market intervention isn’t the right thing to do as it puts a strain on the external reserves balance.
The CBN policy has however revealed the weakness in the Nigerian economic structure as it relates to FX policy. More than one year after devaluation, the naira has not seen a light across the currency market due to FX scarcity.
In the market yesterday, the Nigerian local currency declined further due to sustained FX liquidity challenges in the country while US dollar demand continues to grow. The naira lost a great deal in 2024 following the decision to float the local currency without well map strategy to curb imports.
The Central Bank of Nigeria’s (CBN) FX reform has plunged some companies into a mess. Unfazed by the development, the monetary authority has maintained a stance, of not defending the local currency in the Nigerian autonomous foreign exchange market.
Also, the CBN halted its heavily subsided FX sales to bureaux de change operators in the informal currency market, requesting operator re-registration. On its own, the naira has been unable to survive the market onslaught from surging demand for the US dollar, the global dominant foreign currency.
Goldman Sachs, a rather strong naira bull, predicted that the exchange rate would clear at N1000 US dollar at the official window. Financial Derivatives Company had also announced that the local currency was undervalued and estimated its purchasing power at below N1000.
Fitch Ratings on the other hand set N1,450 per US dollar estimate amidst a grossly undervalued tantrum by the monetary authority.
In the official FX window, the naira exchange rate ended the day at ₦1,532.58 per US dollar, representing 0.57% depreciation from the previous close, data from the Financial Markets Dealers Quotations (FMDQ) platform showed. The same experience was witnessed at the informal currency market. Again, the exchange rate also worsened at the informal currency market.
Traders reported that the naira depreciated by 0.1% in the parallel market, ending the day at an average of ₦1,529 per greenback as demand for invisible FX transactions increased. The authority’s thinking or expectation is not clear as the exchange rate continues to weaken in a country that depends more on imports.
The central bank has distanced itself from FX sales to authorised dealers to reduce pressure on the naira, which has lost significant value in the last 12 months. On the other hand, the exchange rate has inched around its fair value when considering the sustained decline in gap between official and informal FX market rates.
“The naira spot rate is unlikely to rebound without strong FX liquidity in the Nigerian autonomous foreign exchange market”, analysts said.
Oil prices fell today, as the Gulf Coast production and refining infrastructure seemed to have escaped significant damage from Tropical Storm Beryl. Thus, Brent prices declined by 0.69% to $85.16, while WTI prices dropped by 0.51% to $81.91. In addition, gold prices rose by 0.10% to $2,365.00 per ounce at the time of this report.
Despite this, Nigeria’s foreign currency reserves crossed the $35 billion benchmark, its 19-month high, according to data from the CBN website. Details from the Central Bank of Nigeria (CBN) showed that gross external reserves grew from $34.77 billion at the weekend to $35.051 billion on Monday. #Naira Extends Free Falling, External Reserves Crossed $35bn How Emefiele Moved Funds to Wife – Witness
