Naira Gains Further as Demand Pressures Slowdown
After a tough outing in the second half of 2022, the Nigerian naira consolidates on its gaining streaks at the Investors’ and Exporters’ foreign exchange (FX) window on Tuesday amidst an interest rate hike by the monetary authority on Tuesday.
At its final meeting in the current year, the Central Bank of Nigeria (CBN) monetary policy committee raised the benchmark lending rate by another 100 basis points to 16.50% in a move to battle the worsening consumer price index.
Data from the FMDQ Exchange platform indicates that the naira exchange rate at the official window strengthened as demand for foreign currencies undercut the total market supply.
Thus, market participants in the FX space exchanged the local currency for N445, representing a 0.09% gain when compared with the opening rate of N445.38. READ: Treasury Bills Yield Slowdown as FX Spread Hits 36%
The foreign exchange rate had crossed N446 at the Nigerian Autonomous Foreign Exchange Fixing (NAFEX) window before the recent appreciation. For importers and manufacturers of goods that play at the window, a small gain could mean so much, according to FX analysts.
Meanwhile, in the open market, the naira exchange rate remain steady as traders waited for the apex bank decision following spurious trade that occurred in the alternative FX window after the CBN announced the naira redesign.
According to MarketForces Africa’s channel check on Tuesday, it was discovered that the FX spot rate closed between N770 and N780 in the black market In a recent report, the International Monetary Fund, IMF, said a unified and market-clearing exchange rate remains critical to enhancing confidence.
Foreign investment in the country has declined as investors have been unable to repatriate United States dollars abroad. This has triggered an increase in total FX backlog which if debited against the external reserves could pressure the nation’s FX market position.
“Continued FX shortages, a stabilized exchange rate regime, rising inflation, limited debt servicing capacity, and administrative restrictions on current transactions fuel devaluation speculations”, IMF told the Nigerian government.
It added that these factors hinder much needed capital inflows, encourage outflows and constrain private sector investment.
Also, the mission reiterated its past recommendations to move towards a unified and market-clearing exchange rate by dismantling the various exchange rate windows at the CBN accompanied by clarity on exchange rate policy and supportive fiscal and monetary policies.
In the medium term, IMF said the CBN should step back from its role as the main FX intermediator, limiting interventions to smoothing market volatility and allowing banks to freely determine FX buy-sell rates.
