Naira Gains, External Reserves Decline for 10-Week

Naira Gains, External Reserves Decline for 10-Week

Fighting off demand pressures in the foreign exchange market, the Nigerian naira held strong against the United States dollar across the board despite 10 weeks straight decline in external reserves.

Rather than as a result of improved fundamentals or some sort of reform expectation, the gain was propelled by the FX pattern which appears to be swinging right and left as the Central Bank of Nigeria maintains market intervention.

Across the FX market last week, demand for the US dollar remains substantial and analysts remain stuck with projections that the local currency will be devalued in the second half of the year 2023.

Data from the FMDQ Exchange platform showed that at the investors’ and exporters’ FX window, the Naira appreciated by0.11% week on week to close at N461.33 from N461.83.

Also, the local currency edged the United States dollar by N5 week on week to close at N746 from N751 in the previous week. FX spot rate appreciation at the open market was supported by naira scarcity, according to FX traders.  

At the Interbank Foreign Exchange Forward Contracts market, the spot exchange rate remained unchanged and closed at N462 On Friday. FX traders at Cowry Asset Management Limited told clients via email that it was all green for the Dollar index across all forward contracts.


In the forward market, 1-month contract appreciated by 0.5% to N467.87, then, 2-month contract gained 0.32% to close at N475.74 per US dollar. In the same way, 3-month contracts inched up 0.51% to N484.34, 6-month contracts rose by 1% to N511.25 and 12-Month tenor contracts strengthened by 2.36% to N561.79 per US dollar.

As the CBN continues its weekly FX market intervention to defend the value of the naira via auction sales, Nigeria’s FX reserves declined for the tenth consecutive week.

Data from the CBN website showed that gross reserves dropped by US$163.67 million last week to close at US$35.78 billion.

Analysts still maintain a view that FX liquidity issues will remain over the short-to-medium term in absence of any positive signal that denotes an improvement in FX supply relative to the pre-pandemic levels.

Moreover, considering the tepid accretion to the reserves given low crude oil production and elevated PMS under-recovery costs, Foreign portfolios investors who have historically supported supply levels in the official window will be needed to sustain FX liquidity levels in the medium to long-term, according to Cordros Capital analysts. 

On the lingering liquidity concerns in the FX market, the monetary policy committee expressed optimism that RT-200 FX programme, Naira-4-dollar, and other policies targeted at attracting remittances would continue to improve accretion to external reserves and improve liquidity.

However, external reserves nosediving persistently despite recent improvements in oil production volume which the Organisation of Petroleum Exporting Countries (OPEC) confirmed to print at 1.3 million barrels per day, behind 1.80 million barrels per day quota for the country.

In a note, Afrinvest Limited said the rebate on both policies is relatively unattractive to lure exporters and diasporans to the official window given the large spread between the official and parallel market rates.

Analysts advised that the focus of the CBN should be more tilted to addressing capital control policies and the multiplicity of the FX window which has continued to hinder the inflow of FX into the economy.

Based on historical performance, foreign portfolio and direct investment are currently at the lowest level in more than half a decade, according to Afrinvest limited. Naira Gains, External Reserves Decline for 10-Week

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