Naira Rises as Analysts Anticipate Devaluation at Investors Window
Nigeria’s local currency, naira, rises against the United States dollar weekend but analysts appear not to be satisfied with a relatively overpriced local currency, thus expecting further devaluation at Investors and Exporters foreign exchange rate window.
Data from the FMDQ Exchange platform showed that Naira traded at N414.30 to a dollar in the Investors and Exporters window, gaining 0.2% week on week against the previous record.
While external reserves position has expanded significantly following an inflow from foreign currency borrowings of $4 billion and about $3.5 billion inflow from special drawing rights, the naira has faced many pressures, crossing N420 briefly at investors and exporters foreign exchange window.
This week, Nigeria’s foreign currency reserves snapped its ten consecutive weeks of accretion as it closed lower by $102.20 million week on week to $41.73 billion, according to Cordros Capital in a macroeconomic note.
In the parallel market, the foreign exchange rate has worsened after the central bank decision to ban weekly dollar supply to bureau de change operators in July. However, low dollar supply has persisted despite growing prices of oil in the global market,
The combined effects of FX strain in Nigeria has been a worsening production cost as Stanbic IBTC Purchasing Manager Index for October hinted that private sector growth was peppered by foreign exchange pressures.
In June 2021 while addressing a meeting, Godwin Emefiele, Governor of the Central Bank told the conference that Nigeria’s spot naira rate was overvalued by up to 10%.
No official devaluation has occurred since the statement except for about 13% devaluation seen at the interbank foreign exchange market to N430 to a dollar.
Some analysts attributed the move to a lower exchange rate at the interbank foreign exchange window to a move to converge the policy authority’s multi-tiered exchange rates.
In the Nigerian Autonomous Foreign Exchange Fixing, the naira has not been stable amidst a noted slowdown in CBN participation at the Investors and Exporters foreign exchange window in recent time.
In a report, analysts at Cordros Capital indicates an expectation that the local currency should be devalued closer to its fair value of N456.67. Read Also: CBN Devalues Naira 12.95% despite Rising Foreign Reserves
MarketForces Africa reported that Meristem analysts had projected a higher denomination to step the local currency from free-falling amidst a steep inflation condition.
This week, Naira appreciated against the greenback by 0.19% to close at N414.30 a dollar at the Investors and Exporters FX window as external reserves climbed further to $41.73 billion as of Thursday, November 4, 2021.
Also, the exchange rate fell (Naira appreciated) at the parallel market to close at N562.00.
However, it closed flat at N430.00 per dollar at the Interbank Foreign Exchange market despite a weekly injection of $210 million by the CBN.
Of the sum, a total of $100 million was allocated to Wholesale Secondary Market Intervention Sales (SMIS), $55 million was allocated to Small and Medium Scale Enterprises and $55 million was sold for Invisibles.
In the new week, analysts at Cowry Asset Management Limited are expecting Naira to remain stable against the dollar as the Organisation of Petroleum Exporting Countries and allies (OPEC+) remain committed to moderating global production output for crude oil.
More so, analysts at the firm belief that the increase in Nigeria’s production quota would further boost the country’s foreign earnings.
At the Investors and Exporters foreign exchange window, total turnover decreased by 38.9% week to date before it printed at $486.13 million on Thursday, with trades consummated within the N404.00 – 453.10 band.
In the forwards market, the 1-month contract appreciated +0.1% to N416.07, 3-month rises +0.5% to N422.22 and 6-month jumps +0.5% to N431.48 following the recent devaluation of the local currency at the SMIS window.
Meanwhile, the 1-year contract depreciated -0.9% to N450.72 per dollar.
Analysts at Cordros Capital noted that although the CBN has enough liquidity to support the market in the near term, they said foreign inflows are paramount for sustained FX liquidity over the medium term given their level of importance.
It was hinted that foreign portfolio inflow accounted for 53.8% of FX inflows to the Investors and Exporters FX window pre-pandemic.
“We think further adjustments in the exchange rate peg closer to its fair value as implied by a real effective exchange rate of N456.67 per dollar and flexibility in the exchange rate would be significant in attracting foreign inflows back to the market”, Cordros Capital stated.
Accordingly, analysts at the firm expect the CBN to devalue the Investors’ and Exporters’ foreign exchange rates between N440.00 and N460.00 per dollar over the short-to-medium term. # Naira Rises as Analysts Anticipate Devaluation at Investors Window.