Naira Mixed, Foreign Reserves Fall amid Uncertainties
The Nigerian local currency, the naira, traded divergence line across the foreign exchange (FX) market amidst unpriced economic risks driven by scarcity of new naira notes in Nigeria ahead of the presidential election.
While a slowdown in demand aided the improved exchange rate in the investors’ and exporters’ foreign exchange market, increased demand for foreign currency at the parallel market shifted the exchange rate upward.
After the Central Bank of Nigeria’s deadline for the naira swap, the new notes remain scarce. The development induced social unrest across the nation which currently faces high food inflation and fuel scarcity.
The scarcity has impacted economic activities since the beginning of February. Also, unavailability of sufficient new notes to meet customers’ demand forced some banks to close operations temporarily.
While the impacts of reduced economic activities on the economy may not be correctly ascertained, analysts said there is a possibility that gross domestic product growth for the first quarter OF 2023 will be impacted negatively.
MarketForces Africa reported that investment firms are already advising high networth individuals’ clients to hold their assets in the United States dollar amidst a loud call for devaluation of the local currency.
At the investors’ and exporters’ FX window, the Naira appreciated by a marginal 0.05% week on week to close at N461.25/$ from N461.50/$ despite the growing FX pressure on the naira and the newly redesigned currency circulation battle.
In 2022, Naira lost about 11% of its value due to high demand for imports and lower inflow from crude oil sales – which still accounts for some 90% of external inflows per annum.
In the currency market, the pressure on the Naira intensified in the parallel market as the exchange rate printed at ₦770.00 from N755 earlier in the week despite the reduced amount of naira in circulation.
During the just concluded week, Nigeria’s President Muhammadu Buhari ordered the central bank to recirculate the old N200 into the banking system alongside the newly designed banknotes until April 10, 2023, when it will cease to be a legal tender.
Analysts believe that the move is aimed to curb activities of money laundering, vote-buying, and ransom-taking by Kidnappers. At the Interbank Foreign Exchange Forward Contracts market, the spot exchange rate moved further against the Naira by 3.82% to close at N462 from N445 from the previous week, according to currency traders.
Analysts said the exchange rate in the Naira FX Forward Contracts Markets was all green for the dollar index across all forward contracts except for the 1- Month tenor that appreciated by 01.39%to close at N486.88.
However, the forward rate 3-month contract declined by 1.5% to NGN493.97 and 1-year contract weakened by 14.4% to NN618.70. Requesting that the local currency should be devalued to its near fair value, analysts said they expect the lingering demand-supply imbalances to pressure rates across the FX segment in the new week.
Nigeria’s FX reserve maintained its descent for the fifth consecutive week, as the gross reserve position declined by $ 42.21 million to close at $ 36.78 billion, according to data from the Central Bank website.
The apex bank market intervention in the foreign exchange market has slowdown. Though, analysts projected a possible increase in FX inflow into external reserves following improved crude oil production amidst a wavering global market.
Last week, the Oil prices swing signalled a negative close on Friday and was largely driven by the concerns that the Federal Reserve was not done with aggressive rate hikes which could counter the positive demand forecast from OPEC and IEA.
Nigeria’s bonny light crude price declined by 2.33% or $2.09 a week on week to close at $87.46 per barrel from $89.55 per barrel last week. # Naira Mixed, Foreign Reserves Fall amid Uncertainties
