Naira Trades N293.50 above Open Market Rate
Traded at N461.50 against the United States (US) dollar at the Investors’ and Exporters’ foreign exchange (FX) window on Friday, analysts estimate that the Nigerian naira is now N293.50 above open market rate.
The local currency which is currently not readily available for transactions across Nigeria due to scarcity has continued to face multiple pressures, driven partly by policy somersault.
While demand for foreign currency remains inelastic in Nigeria due to high dependence on imports of goods and services, both internal and external factors have impacted inflows into the local economy.
Data from the Central Bank of Nigeria (CBN) show that the foreign reserves compressed further to $36.8 billion – the lowest level since third quarter of the financial year 2021, analysts said.
As local banks halted dollar usage for transactions using debit cards based on the apex bank’s instructions, pressure continued to mount on the Naira in the parallel market.
In a week, the exchange rate worsened to N755 against the United States dollar as Nigerians scramble for local currency across the cities. At the investors’ and exporters’ FX window, Naira traded flat at ₦461.50
As such, the differential between the parallel market and the official rate widened to ₦293.50 from ₦290.83 the prior week, according to Afrinvest, whose analysts said they expect the lingering FX shortage to drive a mild deterioration in the parallel market rate in the new week.
In its market brief, Cordros Capital told investors that inflows into the Investors & Exporters Window declined by 54.1% to USD 847.20 million in January after hitting a 12-month high in December 2022 (USD 1.85 billion).
Analysts noted that foreign investors remain on the sidelines as the lingering FX illiquidity bites harder amidst the lack of FX reforms and weak domestic macro narrative.
FX inflows from foreign investors settled at USD114.00 million against the USD109.80 million inflow reported in December at the window in December 2022.
Breakdown shows that foreign currency inflows from the local sources were down 57.8% month on month to USD733.20 million – settled at a 4-month low as supply dipped across all the different local segments.
In January, US dollar inflow from Non-bank corporates declined by 62.1%, and inflows from Exporters fell by 56.1%. FX supply by CBN dropped by 15.8% and inflows from Individuals slow down by 67.7%.
“We believe FX liquidity conditions will remain frail over the short-to-medium term in the absence of reforms to attract US dollar inflows into the economy.
“The low FX liquidity conditions will also be driven by the lingering global uncertainties and higher global interest rates, limiting foreign inflows to the economy amid uncertainties over the 2023 general elections”, analysts stated.
In the Interbank Foreign Exchange Forward Contracts market, the spot exchange rate remained unchained from the previous week as it closed the week at N445 per US dollar.
In the FX Forward Contracts Markets, it was a mixed trend across all forward contracts as the 1-Month and 12-Month tenors depreciated by 1.11% and 8.66% to close at N488.77 and N529.62.
On the contrary, the 2-Month, 3-Month and 6- Month tenor contracts appreciated against the greenback by 1.16%, 0.6% and 0.34% week on week to close at contract offer prices of N481.72, N486.65 and N504.45 respectively.
“In our opinion, the Naira demand pressure is expected to stay unabating following the limited supply of the local currency. This further exposes the inability of the central bank to meet the supply of the local currency as we transcend gradually into the cashless policy regime”, Cowry Asset Management wrote. # Naira Trades N293.50 above Open Market Rate
