Naira Falls to N768.60 as FX Convergence Widens
With a seesaw exchange rate movement, the Nigerian naira lost the fight against the dominant foreign currency, the US dollar, at the investors’ and exporters’ FX window, FX market data showed a 3.7% daily decline.
The exchange rate worsened amidst a shortage of FX supply across FX markets in Nigeria, a development that has forced a series of devaluations of the local currency in the last few years.
Data obtained from the FMDQ OTC FX market showed that the spot rate at the investors’ and exporters’ window weakened against the US dollar, trading at N768.60 from N740.08.
Conversely, in the parallel market, the Naira remained unchanged at N870 against the US dollar, widening the gap between official and open market rates by more than N100 on each dollar.
Nigeria’s External Reserves Below $34bn
External reserves in December 2022 was US$37.39 billion, lower than the US$42.60 billion in 2021. The level of External Reserves could finance 5.4 months of goods and services or 7.1 months for goods only, compared to 7.3 months or 9.6 months, respectively, in 2021.
By mid-June 2023, Nigeria’s foreign reserves has declined below $34 billion, and accretion has been limited amidst crawling remittance records. Access to Eurobond, though open, will come at a steep cost – Africa’s largest economy by size of GDP may not be able to add salt to the wound.
At the current level, Nigeria’s external reserves is expected to remain comfortably above the international benchmark of 3.0 months of import cover in the medium to long-term horizon. This bullish expectation is hinged on the sustained improvement in crude oil production as the Nigerian government intensifies efforts to address the existing production challenges.
In addition, the current account surplus in the medium to long-term horizon is assumed to support the maintenance of buoyant external reserves. #Naira Falls to N768.60 as FX Convergence Widens