Naira Slides as Nigerians Import Appetite Rises
The exchange rates weakened across the currency markets on Wednesday as demand for the US dollar accelerated above the total market supply.
Hence, the Naira depreciated by 0.55% closing at N874.71 to the US dollar from N869.91 per dollar the previous day at the Nigerian Autonomous Foreign Exchange market (NAFEM), according to FMDQ data.
In the parallel market, the Naira traded weak on Wednesday, closing at N1,102 against the US dollar after gaining a streak due to invisible hands that held down demand and supply.
Still, Nigeria’s gross external reserve has continued to rise even with the pressures in the global oil market. The crude oil prices decline has been compensated for by increased oil production volume.
Data from the central bank showed that gross external reserve has surged above $33.4 billion, reversing the previous weekly decline.
Brent crude dropped by 0.29% to $81.38 per barrel, while the West Texas Intermediate (WTI) crude oil also declined by 0.37% to $77.09 per barrel.
FX analysts had predicted that the naira could hit N1,000 per United States dollar in 2023- if the supply side remains under pressure amidst surging demand.
To reverse the current trend, the local currency requires official backing as the road to Zimbabwe is getting clearer. Though there have been records of recovery, the local currency has depreciated significantly against a basket of foreign currencies across the forex market.
The naira has continued to weaken in value even after a large devaluation of the local currency in June.
“The monetary authority is already aware that naira devaluation as part of FX reform has failed”, analysts at LSintelligence Associates said in an email chat. The Nigerian Naira is the worst-performing currency in Sub-Saharan Africa in 2023, the World Bank said in its latest report.
In its bi-annual publication, Chief Economist of the World Bank Africa Region provides an analysis of the issues shaping Africa’s economy.
According to the report, the Nigerian Naira has posted a year-to-date depreciation of more than 40 per cent, making it the weakest currency in Sub-Saharan Africa, alongside the Angolan Kwanza.
Naira’s depreciation has been a significant contributor to Nigeria’s inflationary pressures, according to various reports.
However, resistance toward the increasing pressure on the Nigerian naira coupled with a limited supply of FX at the official window has led to the re-emergence of the parallel market premium.