Naira Struggles to Retain Value as External Reserves Tumble
The Nigerian local currency, Naira, struggles to retain value as external reserves tumble amidst rising import bills, low export receipts. In the investors and exporters window, it costs N412 to obtain a United States dollar as external reserves extended its decline, closing at US$34.35 billion, a decline of 0.5% drop in a week.
Limited accretion into the external reserves continues to impacting the Nigerian central bank’s (CBN) weekly intervention at the foreign exchange market.
Largely, supply has remained below pre-pandemic level, though investors’ demand for dollar funding has maintained an uptrend.
The CBN continues to encourage foreign exchange inflow with remittance by offering incentives, however, it is not clear if this is working.
Some analysts believe that external reserves may fall below the US$30 billion mark if the apex bank continues supporting the local currency without commensurate inflow – from export receipts in particular.
Alpha Morgan Capital said in a statement that in total, Nigeria’s FX reserves decreased by USD227.31 million this week as the outflows for the CBN’s interventions across the various FX windows outweighed dollar inflows.
This week, oil prices inched lower with the benchmark Brent crude down more than 3% to $66.6 per barrel litre despite increasing demand on the back of eased restrictions in Europe.
On the domestic front, the external reserves declined marginally amidst what appears to be a very limited inflow and wait-in-line expectation for foreign borrowings.
At the parallel market, the naira depreciated by ₦1.00 to ₦485/$1.00. At the Investors’ & Exporters’ (I&E) Window, the naira depreciated by 33kobo to ₦412.00/$1.00.
According to Afrinvest, the activity level in I&E Window surged 125.2% to $624.9 million from $277.5 million recorded in the previous week.
The investment firm said the total value of open contracts of the naira at the FMDQ Securities Exchange (SE) FX Futures contract market rose 1.0% or $47.6 million to $4.8 billion.
It said the JULY 2021 instrument at a contract price of ₦423.29 received the highest subscription of $20.9 million which took total value to $236.3 million.
On the other hand, the JUNE 2021 instrument at a contract price of ₦421.86 recorded the least demand totaling $6.2 million, taking total value to $289.8 million.
“We expect the exchange rates to remain range-bound at the various markets in the coming week”, Afrinvest said in a report.
Naira Struggles to Retain Value as External Reserves Tumble
