Naira Falls Amidst CBN Update on Local Currency
Nigerian naira lost 0.04% against the United States dollar N461.67 at the Investors’ and Exporters’ foreign exchange (FX) window, according to market data obtained on Monday, after apex bank updates on old notes.
The open indicative rate closed at N461.50 to the dollar while an exchange rate of N462.50 to the dollar was the highest rate recorded within the day’s trading before it settled at N461.67 per greenback.
The naira sold for as low as N445.96 to the dollar within the day’s trading. Meanwhile, a total of 77.64 million dollars was traded at the official Investors’ and Exporters’ window, according to market data.
Amidst expectations of large devaluation after 2023 elections, the Nigerian naira continues to face market pressures following tight foreign currency inflows into the country. Investment inflow is at a record low when compared with pre-pandemic levels.
To foreign investors, US Fed’s hawkish pose has changed the investment playbook; resulting in large outflows from Africa’s markets in particular, forcing large currency depreciation along with an inflation uptrend.
Africa’s largest market, Nigeria, is not excused for the decline in hot monies. Last week, Nigeria’s foreign reserves declined further even while oil trades above 2023 budget benchmark, according to data from the apex bank website.
The International Monetary Fund estimates that the naira is overpriced and Bank of America came out clearly in the latter part of 2022 that the local currency trades at 20% above its fair value.
In the local FX market, the exchange rate continues to swing both ways depending on the size of foreign currency demand in the official market.
Nigeria’s market rate has been mostly supported by Central Bank’s sustained FX auctions designed to keep rates steady at the official window.
The Central Bank of Nigeria’s (CBN) foreign exchange market intervention induced pressures on its gross external reserves position despite lower US dollar inflows.
Nigeria is set to settle a bulk sum of $500 million Eurobond loan in July 2023. Nigeria’s coupon rate for the issuance was priced at 6.375%, maturing on July 12, 2023.
Africa’s largest economy by gross domestic product size is battling with multiple issues around its local currency. Rather than gaining, the naira is merely reclaiming loss value in the FX market.
CBN failed naira redesign policy continues to stoke an untold hardship on citizens while there are inestimable large losses awaiting corporates as productive activities taper.
Nigeria’s Central Bank chief, with support from the Federal Government, continues to keep mum over the supreme court order that overturned the naira redesign program and extended the use of the old naira till December 2023.
Meanwhile, a decline in crude oil price signals low inflows into Nigeria’s pocket from oil exports – hydrocarbon revenue being a major source of foreign currencies.
Last week, the oil market closed negative with a 4.4% weekly loss in Brent crude oil price to $82.04 per barrel – no thanks to overall global economic growth pessimism and expectations that the U.S. Federal Reserve will continue to hike interest rates.
Consequently, despite improved oil production volume, external reserves declined to $36.4 billion, translating to 9-month import coverage, according to analysts.
In the foreign exchange market, the exchange rate improved as importers’ and manufacturers’ demand for the US dollar across the market declined relative to supply, traders said.
At the Investors & Exporters Window, activity level fell 19.5% week on week to $539.4 million, Investment banking firm, Africa Limited, said in a note.
Following a slowdown in dollar volume transacted, the Naira appreciated slightly by 0.05% week on week to close at N461.50 from N461.75. In the open market, the local currency edged the greenback, appreciated by N6.00 or 0.79% week on week to close at N752/USD from N758/USD in the previous week.
Despite FX illiquidity, analysts anticipate that the Naira would extend this week’s performance across segments in the coming week given the reduced conjectures amidst scarcity of new local currency notes.
A look at activities at the Interbank Foreign Exchange Forward Contracts market, the spot exchange rate remained unchanged closing at N462 per US dollar.
It was all green for the Nigerian Naira index across all forward contracts with appreciations reported for the 1-Month, 2-Month, 3-Month, 6-Month and 12-Month tenor contracts against the greenback.
Exchange rates gained +0.11%, +0.48%, +0.82%, +0.63% and +0.10% week on week to close at contract offer prices of N466.68, N473.97, N482.13, N508.90 and N542.79 respectively, according to Cowry Asset Management Limited. #Naira Falls Amidst CBN Update on Local Currency
