Naira Mixed as CBN Deepens FX Market Intervention

Naira Mixed as CBN Deepens FX Market Intervention

Nigeria’s naira displays sideway performance, though it has reduced in value across foreign exchange markets following successive outflows from the economy.

Despite its weak position as a means of exchange, the apex bank continues to give false hope about the strength of the local currency with FX market intervention that’s draining external reserves.

However, with a moderate recovery at the investors and exporters window, the exchange rate trended positive at the close of business last week.

Analysts affirmed that Naira appreciation was supported by the apex bank’s increased market intervention – a recent development after hibernated support seen earlier in 2023.

Also supporting the gain was about 60% increase in FX inflow into the official window in March, according to data from the FMDQ exchange platform.

Even with that, the Nigerian naira exchange rate crossed yet another line, rose above N462 per United States dollar – the first time in 2023 – to more than N463.

In the first quarter, foreign investors remain unimpressive regarding the market conditions in Nigeria.

The lack of inflows into the economy to the pre-pandemic era continues to fuel foreign currencies’ illiquidity while demand continues to rise.

Struggling to manage large FX demand, the apex bank faces pressure to keep the naira strong amidst growing expectations for official devaluation.

FX analysts and other foreign interests pitched that naira devaluation will help Africa’s largest economy attracts inflows from foreign investors.

Unfortunately, this will have immediate impacts on the local economy, including rising production costs and lowering the purchasing power of the local currency, MarketForces Africa gathered.

In March, the Central Bank of Nigeria  (CBN) instructed local deposit banks to reduce business and personal travelling allowances to citizens in order to reduce pressures on external reserves while its sustains FX auctions.

Redirecting forex demand to the black market, the Nigerian banks have since then reduce personal and business travelling by half to $2000 as a way to meet eligible foreign currency demand.

Amidst the CBN’s weekly FX market intervention, Nigeria recorded a higher foreign currencies outflow from its external reserves; its gross balance tracked lower to $35.38 billion.

In the just concluded week at the parallel market, the local currency edged out the US dollar, gaining N1 to close at N747 from N748. 

On weekly comparison, the Naira lost N1.87 to close at N463.25 from N461.38 at the investors’ and exporters’ FX window, in the face of the unabating FX pressure from manufacturing concerns.

A look at activities at the Interbank Foreign Exchange Forward Contracts market, the spot exchange rate remained unchanged closing at N462. Naira Lost 11% as Banks Issue New Update on FX Spending

According to the data obtained from FMDQ, total inflows into the Investors & Exporters Window (IEW) rose by 59.2% month on month to $1.49 billion in March from $ 937.60 million in February. 

On the one hand, local inflows increased by 46.9% in March to $1.20 billion primarily due to higher inflows from the CBN, up by 240.3% above February records.

Analysts said inflows from exporters grew by 7.2% in March and non-bank corporates popped higher by 50.9% above the level seen in February 2023.

In a note, analysts at Cordros Capital said though foreign inflows rose by 2.4x to $291.90 million; remained significantly below pre-pandemic levels at a monthly average of $1.56 billion in 2019.

The weak FX inflow was attributed to liquidity constraints for foreign investors who want to upstream the US dollar abroad, an overvalued currency, and the absence of significant macro reforms.

“Over the short-to-medium term, we expect FX liquidity conditions to remain frail in the absence of reforms to attract US dollar inflows into the economy.

“The low FX liquidity conditions will also be driven by lingering global uncertainties and higher global interest rates, limiting foreign inflows to the economy. Thus, foreign investors will need some convincing actions as regards flexibility and clarity in the FX framework going forward”, according to Cordros Capital.

In the oil market, the crude price rebounded to $84.76 per barrel despite the production cut from major oil producers in the midst of confidence returning to the global banks and recession fears.

However, Bonny Light crude price react positively, surging by 7.6% or ($5.61) week on week, to close at $86.80 per barrel from $79.57 per barrel in the previous week.

Nigeria’s naira is projected to trade in a relatively calm band across various market segments barring any market distortion in the face of the Naira scarcity and as the apex bank continues its weekly FX market intervention to defend the value of the naira. #Naira Mixed as CBN Deepens FX Market Intervention