Naira Tumbles over Fresh Forex Demand Pressure
Demand for foreign currencies spiked, albeit, marginally across the foreign exchange market, pushing the exchange rate curve upward. In the official market, more naira was required to obtain the United States dollar.
A similar pattern was witnessed in the parallel market where the Nigerian naira is being freely exchanged between sellers and buyers. Traders told MarketForces Africa that a 50% slash in business and traveling FX allowance has not started to filter into the parallel market, projecting that the exchange rate might surge further.
FX record shows that at the investors and exporters window, the Naira depreciated against the United States dollar by N0.10 or 0.02% week on week to close at N462.33/$1 from N462.23/$1 the previous week.
Analysts said the rate disturbance was driven by increased demand level while players in the market kept bids between N461 and N467.
Also, the naira at the parallel foreign exchange market depreciated by N1 or 0.13% week on week to close at N746/$1 from N745/$1 in the previous week on the back of increased dollar demand.
Upturning the previous week’s accretion, Nigeria’s foreign reserves bumped after the Central Bank of Nigeria conducted an FX auction to authorize dealers – local banks and other financial institutions.
At the auction, CBN weakened the spot fx rate to N466 per United States dollar. Global prices of crude oil came under intense pressure amidst a weak demand outlook spooked by twin crises in the United States: Banking and Debt ceiling.
At the Interbank Foreign Exchange Forward Contracts market, the spot exchange rate remained unchanged closing at N462 per greenback.
Brent Crude traded at $74.44 per barrel sliding southward over recession fears. However, the Bonny Light crude price regained its positive weekly rally to gain 5.9% or ($4.23) week on week, to close at $76.22 per barrel from $71.99 per barrel in the previous week. OPEC made a slight change to its annual oil demand forecast by 2.33 million bpd.
Analysts said they expect the naira to trade in a relatively calm band across various market segments barring any market distortion and as the apex bank continues its weekly FX market intervention to defend the value of the naira.
In a chat with MarketForces Africa, Sodiq Lala, a finance expert said, “I think the naira’s value will continue to struggle as long as we have multiple exchange rates.
Investors’ market is heavily managed – devoid of the forces of demand & Supply, and the parallel market is highly fragmented – remaining unstructured and not entirely market/information driven.
Lala said Nigeria needs to make bold moves, like bringing the interest rate to a single digit, allowing a single market-oriented & structured forex market, and removing subsidies.
“For now, investors have lost trust in our market, so bringing interest rate down will not have so much impact on FPI and foreign reserve, rather it will boost the local economy and make the opportunities within the economy visible enough for FDI, just like we are doing with FinTech.
“With this CBN does not really need to do the devaluation, the market will be the judge of the naira’s value. Although there might be chaos/loss of value in the short-term, it will smooth out in the mid to long-term”, he added.
When the naira gains value, people will reduce saving in dollars. This will force citizens to hold their savings in naira instead of dollars, which will simultaneously boost the supply and reduce the demand for dollar. Presently, close to half of Nigerians’ savings are in dollar, Lala added. #Naira Tumbles over Fresh Forex Demand Pressure