Naira Trades Weak as External Reserve Falls
Trading weak across foreign exchange markets, the Naira continues to struggle to hold a position while FX spot rates in the black markets worsened amidst heightened inflation and interest rates in Nigeria.
At the close of trading on Friday, market participants exchanged naira for a unit of United States dollar at N418.33, having appreciated from a month high of N421 at the Investors and Exporters window.
Tumultuous reaction after the Central Bank of Nigeria hiked the benchmark interest rate by 150 basis points to 13% left the FX rates worsened across the markets. The parallel market rate spiked to N610 during the week as pre-election demand for dollars jumped.
While dollar inflow remains limited despite rising oil prices, the external reserve has failed to the $40 billion mark even with a $1.25 billion Eurobond in the year.
Nigeria is expected to make additional Eurobond calls in the year as Debt Management Office ramps up borrowings to finance the 2022 budget deficit worth about N8 trillion.
Already, the DMO has raised about N1.6 trillion from the local debt capital market, about half of the total local borrowings target provided for in the fiscal responsibility act. In the just concluded week, Nigeria’s FX reserves decreased by $125.53 million week on week to $38.6 billion.
Meanwhile, the volume of dollars transacted or total turnover decreased by 31.4% as of Thursday to $428.10 million, said Cordros Capital in a market note with trades consummated within the N410.00 – N453.55 per dollar band.
At the Interbank Foreign Exchange market, the exchange rate closed flat at N430.00 to a dollar amid CBN’s weekly injections of $210 million. READ Naira Tumbles at Official Window, Forward Rate Holds Strong
Of the sum injected this week, a total sum of USD100 million was allocated to Wholesale Secondary Market Intervention Sales (SMIS), $55 million was allocated to Small and Medium Scale Enterprises and $55 million was sold for Invisibles. Meanwhile, the Naira to dollar exchange rate went in mixed directions across the foreign exchange forward contracts.
Specifically, 2 months, 3 months, and 12 months contracts gained 0.05%, 0.05% and 0.18% to close at N420.92, N423.80 and N448.02 respectively, according to Cowry Asset Management. However, 1- month and 6 months contracts lost 00.11% and 0.01% to close at N418.46 and N432.66 respectively.
Projecting into the new week, analysts at Cowry Asset said they expect some level of pressure on the Naira against the greenback due to anticipated pressure on foreign exchange amid electioneering activity coupled with weak petrodollar earnings.
Some analysts are expecting a fresh devaluation of the local currency due to its relative overvaluation in the baskets of currencies pair. Poor productive advantage and higher taste for imports are expected to keep the local currency at bay.
At the extreme, some investment banking experts who talked to MarketForces Africa said there may either be a devaluation or a currency redenomination. #Naira Trades Weak as External Reserve Falls