Naira Sags Amidst Messy FX Reform
Exchange rates across foreign currency markets in Nigeria worsened on Tuesday over sustained US dollar shortage in the economy. As a result of increased demand for imports among other things, the gap between the parallel and official market settled at N145, giving rise to increased speculative activities.
Naira reform by the government has failed to achieve convergence expected due to unimpressive foreign currency inflows into Nigeria. Most analysts believe that foreign investors would remain on the sideline as the Central Bank of Nigeria (CBN) has been unable to clear the FX backlog amidst large FX obligation handing on the country’s external reserves.
Critics believe that the decision to float the naira in June was politically motivated, and now it appears the reform should have never been done in the first place. Streetwise, Nigerians believe there is no relevant benefit from devaluation of the local currency for a country that unavoidably depends on foreign inputs for consumption and further production.
Sending a negative signal to speculators, arbitrageurs the Naira had inched near convergence earlier and was cheaper at the official market than in the parallel market at points.
The reversal to historical divergence in rates started when post-reform management triggered the redirection of forex requests to the parallel market, as a result of a weak supply side.
Nigerian government are expected to push for increased productivity for export to increase foreign currency receipt rather than short term fix, a source in the private sector who prefers not to be mentioned told MarketForces Africa.
Analysts believe that Africa’s largest economy must have enough buffer to support the local currency from free falling as the local debt agency maintains distance from the Eurobond market for borrowings.
However, local borrowings have been attracting negative interest yields that locked the door against foreign investors’ participation. The recent attempt by the CBN to resume OMO bill sales was however adjudge right step for attracting foreign receipts since revenue from oil exports continues to underperform.
Currently, Nigeria lacks a comparative advantage in home production and this has continued to boost demand for foreign products for consumption. Demand for business and personal travelling allowances continued to rise while remittance through official channels fell.
At the investors and exporters window on Tuesday, the naira depreciated against the US dollar to N775.34, losing 0.42 per cent compared to the N772.12 it exchanged for the dollar on Monday. Naira Steadies as Banks Issue Update on FX Purchase
According to market data from FMDQ, the open indicative rate closed at N769.66 to the dollar on Tuesday. Traders said a spot exchange rate of N799.90 to the US dollar was the highest rate recorded within the day’s trading before it settled at N775.34.
The naira sold for as low as N701 to the dollar within the day’s trading. Market analysts said a total of 71.32 million dollars was traded at the investors and exporters window on Tuesday.
In the parallel market, the local currency depreciated by 0.27% to N920 after the CBN brought private currency traders back into the fold. However, the apex bank told MarketForces Africa it has no plan to sell US dollars to Bureau De Change operators but capped FX spread on their dollar sales to invincible users.
In the oil market, Brent crude rose 0.26% to $84.64 per barrel, while West Texas Instrument (WTI) crude gained 0.29% to $80.33 per barrel. Oil futures were higher as traders balanced supply constraints arising from Hurricane Idalia’s potential impact on the US golf against growing demand concerns as rate hikes. #Naira Sags Amidst Messy FX Reform
