Naira Sinks Value in Parallel Market, Hits N417 at IEW
Godwin Emefiele, CBN Governor

Naira Sinks Value in Parallel Market, Hits N417 at IEW

The Nigerian local currency, the naira, hits N590 to a United States dollar on Wednesday in the parallel market amidst sustained scarcity of the United States dollar, thus widening the gap between the black market and the official exchange rate to 42%

Today, the local currency traded steady against the greenback in the Central Bank of Nigeria (CBN) investors and exporters window (IEW). According to data from the FMDQ Exchange, Naira was quoted at N417 after the local currency gave up early gain in the week while the nation’s external reserve stays below the $40 billion mark.

The decline in the value of the local currency at the parallel was attributed to surging demand driven by April holiday-stacked festive period and private use. The widening gap between Nigerian Autonomous Foreign Exchange Fixing (NAFEX) and parallel market rate creates arbitrage opportunists in the currency market, traders said.

The Central Bank of Nigeria has maintained its stance to keep the naira strong with weekly injections in the market while it seeks to drive inflow with rebates to exporters that sell dollars in the official window. The apex bank naira-4-dollar scheme also runs along with other unorthodox measures that signal pressures attracting foreign currencies without rebates.

The rebate given to attract foreign currencies into the country is a subtle devaluation on its own, some analysts told MarketForces Africa. Devaluation of the local currency would worsen macroeconomic indices and put economic growth on a tight rope.

Though, the International Monetary Funds (IMF) said a unified exchange rate would attract foreign investment into the country. But CBN has persisted in closing doors against a deliberate devaluation of the naira.

An investment banking expert Kingsley Aigbe told MarketForces Africa that the apex bank is only postponing the inevitable. A number of investment firms are hoping for a narrow gap between the official and parallel market rates.

Due to high import bills and foreign exchange market intervention, the external reserve has dropped off significantly in 2022.

Even with the recent $1.25 billion emergency Eurobond issued by Debt Management Office in March 2022, the value of external reserve stays behind the mark. Last week, the NAFEX rate was within the range of N410-N452.3 per dollar but closed at N416.3 per dollar last week, gaining 0.04%. According to data from the FMDQ, NAFEX turnover showed a week on week increase from $83.3 million to $119.6m on Friday.

The I&E (NAFEX) window recorded an inflow of $234.4 million with the CBN accounting for 28.6%, foreign portfolio investments (FPIs) accounting for 24.3%, non-bank corporates accounting for 28.5%, and others accounting for 18.6%, according to Coronation Research.

MarketForces Africa report that Nigeria’s external reserves decreased by -0.3% or $135.1 million to $39.5 billion as of Friday. In a note, Coronation Research hints at the expectation that the NAFEX rate will trade range-bound (N416.0/$ – N425.0/$) in the near term.

Turning to the Chinese Yuan (CNY), according to data from the CBN, the Naira appreciated by 0.1% last week to close at N65.4/CNY on Friday. #Naira Sinks Value in Parallel Market, Hits N417 at IEW

READ: Nigerian Exchange Sinks as Investors Sustain Selloffs