Naira Falls amidst Successive Inflows into FX Reserves Post CBN-NNPCL Deal
The naira lost weight across the foreign currency markets as volume of US dollar demand continued to eclipse market supply in the absence of, or rather, too weak FX injections by the Central Bank of Nigeria (CBN).
The external reserves ticked upward further as analysts revealed that series of FX inflows suggest the Nigerian National Petroleum Company Limited (NNPCL) revenue from oil sales domicile with the apex bank as requested by the Federal government has started coming.
In February 2024, the Nigerian National Petroleum Company Limited and the Central Bank of Nigeria agreed to strengthen their relationship toward the achievement of guaranteed seamless commercial operation.
Federal Government directed the apex bank to supervise the management of oil sales and foreign currency revenue generated by the state oil giant that recently converted to a limited liability company as part of efforts to track US dollar revenue generated from oil sales.d liability company.
NNPCL then agreed to domicile its revenue with the apex bank, including some banking services. This decision followed public criticism that NNPCL has been unable to account for foreign currency receipts from crude oil sales over the years.
The Naira lost 1.58% of its value against the US dollar on the Nigerian autonomous foreign exchange market (NAFEM) yesterday; it closed at ₦1,484.66 per US dollar on Thursday. The foreign exchange liquidity has not aligned with demand since the central bank withdrew its support from the informal currency market’s subsidized sales of foreign exchange.
The parallel market exchange rate returned to its previous level as a result, but as was to be expected, the autonomous FX spot rate declined as well, reaching roughly N1534 in May. Nigeria’s move to price flexibility would hurt the naira because of over overdependence on oil, analysts said in a chat with MarketForces Africa. At the parallel market, exchange rate weakened by 1.16%, ending the day at an average of N1,488 per US dollar.
External reserves continue to see accretion, a development some analyst attributed to possibility of FX inflows from privatised state oil company – NNPC Limited. “Something has changed in the pattern of CBN FX inflows record…There have been FX inflows over about a months, and the series looks retail”, experts said in a joint zoom video with MarketForces Africa analysts.
In the global commodity market, West Texas Intermediate crude futures were trading slightly above $78 per barrel, while Brent Crude was priced at $82.43 per barrel. om Thursday. The global commodity market rallied despite concerns over potential prolonged high U.S. interest rates, which raised worries about demand growth in the world’s largest oil market.
Capital Economic analyst said in a note that the naira’s surprising recent recovery appears to have been driven by FX reserve sales and the currency risks becoming overvalued again. Analysts think renewed naira weakness is on the cards over the rest of the year.
In a note, Vetiva Capital analysts said they expect interventions from the CBN to moderate FX pressure over the near term, while inflows of about $4 billion from multilateral institutions and commercial creditors allay currency fears within the next three months. #Naira Falls amidst Successive Inflows into FX Reserves Post CBN-NNPCL Deal FG Targets Fresh $20bn Oil, Gas Deal
