Naira Slumps as Market Records 9% Drop in Forex Trades
Naira depreciates across foreign exchange markets as United States (U.S.,) dollar scarcity persists. Amidst scarcity, the volume of the United States dollar traded at the Investors, Exporters window decline more than 9% in May 2023.
Analysts said that hard currency illiquidity in the local economy was spurred by foreign investors’ apathy, with associated negative impacts on the exchange rate. At the official window, the Naira declined sharply by ₦0.84 to close the week at ₦464.51 per United States dollar.
Exchange rates have been largely struggling as the imbalance in forex demand outweighed market supply despite the CBN foreign currency auction sales in the week.
The CBN FX auction benefits the airlines, agriculture, petroleum, and raw materials/machineries sub-sectors. This includes business and personal traveling allowance which local banks cut by 50% to $2,000 per eligible user.
Meanwhile, analysts explained that only exporters that sell their proceeds at the window can purchase FX from the CBN market intervention, saying there has been improved participation.
A significant injection of foreign currency into the market by the apex bank is to reassure all foreign exchange users of the apex bank’s determination to continue to meet all legitimate FX demand.
Last week, unmet forex demand at the official window filtered into the open or parallel market where the US dollar and other foreign currencies are freely traded at unregulated s[pt rates.
Then, the exchange rate weakened to ₦778 from N775 per US dollar while the gross balance in the nation’s external reserves printed a bit lower at $35.2 billion. Nigeria’s foreign reserves marginally fell by $14.3 million.
The volume of US dollars transacted at the IEW window declined in May 2023 amidst a forex struggle. Activity level or FX turnover declined 9.3% in May 2023 to $649.1 billion from $716.0 billion in April, Afrinvest said in a market report.
The external reserves at the end of 2022 stood at US$36.61 billion, a level that covered 6.8 months of import for goods and services or 9.3 months of import for goods, above the international standard benchmark of 3 months of import cover.
In the oil market this week, oil price movement rebounded in early trading on Friday but is somewhat on course for another week of price decline as it traded at $74.75 per barrel on Friday in the midst of debt talks in the United States and the surprise contraction in China’s manufacturing activities. #Naira Slumps Amidst 9% Drop in FX Transactions at I&E Window
