Naira Hits Red Line, Official Rate Tops Parallel Quote by N17
The Nigerian naira depreciated by about 5%, crossing N1600 red line versus dominance US dollar as eligible foreign currency demand for various import payments exceeded the amount readily available for requisitors at the official window.
Exchange rate movements at the official window signals pressure has persisted at the Nigeria’s autonomous FX market. FX spot rate has tried unsuccesfully to claw back losses amidst while the apex bank maintains stance the local currency is grossly undervalued.
Analysts observed the naira gained slowly but shed large weight each time demand for forex exceeds market supply. To stabilise exchange rate movement, the apex bank has reversed itself on market intervention after long holiday from selling US dollar to banks.
The negative price action followed Fitch Ratings’ expectation that Nigeria will continue to experience FX challenges in 2024. On the other hand, the alternative FX market traded on a quiet note as currency traders continued to watch the Central Bank of Nigeria’s (CBN) steps to ensure exchange rate convergence.
Due to thin trading sessions that followed the withdrawal of more than 4000 Bureau de Change operators, the naira was sold at the previous day’s close. The naira depreciated by 4.45% to close at ₦1,602.43 per US dollar in the official market, according to data from the FMDQ.
In the parallel market, the naira closed at N1,585 against the US dollar, according to channel checks. In its latest macroeconomic note, Fitch thinks that despite a move by the apex bank to clear the backlog of FX forwards owed to banks, it will take time for foreign investors’ confidence in Nigeria’s FX market to return.
The monetary policy tightening, coupled with exchange-rate adjustments, signals initial efforts to address FX liquidity scarcity and restore business confidence.
It was recalled that the CBN governor has announced plans to clear a backlog of unsettled FX forwards “in the next few days,” having settled only $400 million of an outstanding USD2.2 billion, based on CBN estimates, as of late February.
Nonetheless, the CBN’s weak net reserve position will continue to hamper the liberalisation of the FX market, and Fitch expects FX scarcity to persist through 2024.
Even if the authorities resolve the backlog of FX forwards, it will take time for investor confidence in the FX market to return, especially if transparency over the exchange rate and monetary policy remains poor. #Naira Hits Red Line, Official Rate Tops Parallel Quote by N17
