Naira Sheds Value as Political Uncertainties Begin to Mature
Godwin Emefiele, CBN Gov

Naira Sheds Value on Maturing Political Uncertainties

The Nigerian local currency, the naira, depreciated across the foreign exchange (FX) markets amidst maturing political and economic uncertainties in facing Africa’s largest nation ahead of the 2023 election.

Apart from the demand issue, the external buffer for backing the local currency weakened in the just concluded week as the apex bank used up a large sum in the nation’s foreign currency reserves. Rising import bills and low accretion from oil sales are core downside risks to a healthy naira, experts told MarketForces Africa.

Projections show there is a bleak outlook for the local currency as demand for the dollar and other foreign currencies ahead of primary elections in the country is adding pressure to FX markets.

In the just concluded week, Nigeria’s external reserves dipped by $234.81 million to $39.07 billion, analysts’ notes showed over the scarcity of dollars in the economy and Central Bank of Nigeria market intervention.

As uncertainties over Governor of the CBN’s, Godwin Emefiele, interest in partisan politics douse, normalcy has failed to return to the FX markets. READ: T-Bill Sheds 32 Basis Points as CBN Fails to Float Auction

Nigerian naira depreciated by 0.5 per cent and 1.7 per cent to N419.00 and N599.00 per the United States dollar at the Investors and Exporters FX window and parallel market, respectively, Cordros Capital said in a commentary.

At the Investors and Exporters FX window, total turnover or volume of dollars transacted as of Thursday increased by 60.2per cent to $575.81 million, according to Cordros Capital while trades were consummated within the N410.84 – N453.25/$ band.

Trading data from the FMDQ showed that after a two-day interruption, the Naira returned stronger on Friday, gaining 0.24 per cent or N1 against the greenback in the Investors and Exporters.

The open indicative rate closed at N417.70 to the dollar on Friday. An exchange rate of N444.00 to the dollar was the highest rate recorded within the day’s trading before it settled at N419. The Naira sold for as low as 412 to the dollar within the day’s trading.

A total of 169.38 million dollars was traded in foreign exchange at the official Investors and Exporters window on Friday.

At the Interbank Foreign Exchange market, the naira exchange rate closed flat at N430.00 to a dollar amid CBN’s weekly injections of $210 million, according to Cowry Asset Management market note.

Of the sum. $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.

Meanwhile, Naira for dollar exchange rate went in mixed directions across the foreign exchange forward contracts, FX traders said in separate notes.

Specifically, 2 month, 3 months and 12 months contracts gained 0.05%, 0.05% and 0.18% to close at N420.92/$, N423.80/$ and N448.02/$ respectively. However, 1 month and 6 months contracts lost 00.11% and 0.01% to close at N418.46/$ and N432.66/$ respectively.

Cowry Asset Management analysts expect some level of pressure on the Naira against the dollar due to an anticipated pressure on foreign exchange amid electioneering activity coupled with weak petrodollar earnings. #Naira Sheds Value on Maturing Political Uncertainties