Pressures Cripple Naira as Markets Spot Dollar Scarcity
Nigerian local currency, naira, was crippled at the foreign exchange markets despite a $1.25 billion emergency Eurobond raised by the Debt Management Office despite oil market rallies.
Foreign currencies demand increased at the parallel market in the week, causing adjustment to spot rates, Naira was quoted at N584 on Friday as there are indications of dollar scarcity.
At the Investors and Exporters foreign exchange window, Naira ended the week at N416.50 as deposit money banks cut customers’ dollar spending by 80 per cent, taming online purchases using the official exchange rate.
Red signals include a decision to cut customers’ foreign currency spending, DMO’s emergency visit to the Eurobond market despite the Russia-Ukraine war and sustained outflow from the external reserves.
To raise $1.25 billion at the international debt capital market, due to pressures Nigeria offered investors a premium to part away with their dollar asset.
Ahead of the Central Bank of Nigeria’s monetary policy committee meeting next week, the local currency has shed just 86 kobo on sustained market intervention but a different scenario played out in the parallel market where naira value has declined by N13.
Accretion into external reserves remains cold even with global oil prices trading at the 2014 level and sustained foreign currencies borrowing spree by the authority.
In the week, Bonny light crude price remained above $100 per barrel while demand for Nigerian Qua Iboe stays reasonable except that the country is falling behind the Organisation of Petroleum Exporting Countries and allies (opec+) quota.
In the parallel market, Naira lost against the greenback to close at N584 as demand rise following the decision to reduce individual dollar spending for most online transactions.
Now, Nigerian banks customers have to pay market rates to meet their daily FX demand, raising the expectation that Naira could hit N600 per dollar at the parallel market in the second quarter if the United States dollar shortage in banks persist.
At the Interbank Foreign Exchange market, the exchange rate closed flat at N430.00 on intervention as CBN injected a total sum of $210 million to keep naira strong. READ: Naira Tumbles at Official Window, Forward Rate Holds Strong
Of the sum, $100 million was allocated to Wholesale Secondary Market Intervention Sales, $55 million was allocated to Small and Medium Scale Enterprises and $55 million was sold for Invisibles.
Meanwhile, the naira exchange rate appreciates for most of the foreign exchange forward contracts. Specifically, 1 month, 2 months, 3 months and 6 months contracts gained 0.06 per cent, 0.07 per cent, 0.08 per cent and 0.05 per cent to close at N418.23, N421.07, N424.18 and N433.10 respectively.
However, the 12 months contracts lost 0.04 per cent to close at N449.02 per the United States dollar, according to currencies analysts.
In a note, Cowry Asset Limited said, “We expect renewed pressure at the Investors and Exporters FX Window as the markets react to the falling price of Bonny light – the Nigerian sweet crude fell to $108 per barrel from $130 in the previous week”.
Since the last MPC meeting, Naira depreciated marginally by ₦0.86 against the dollar from ₦415.64/$ to ₦416.5/$ at the Importer & Exporter (I&E) window, according to Atlass Portfolios Limited. Meanwhile, the local currency has depreciated by ₦13 from ₦571 to ₦584.
Despite the increase in crude oil price, Nigeria’s foreign reserve declined by $516.63 million from $40.21 million between the last MPC meetings to $39.70 billion as of March 17 2022.
The decrease in the foreign reserve follows the FX market intervention by the apex bank, in a bid to ensure the stability of the Naira by selling FX in the official market at a conservative rate to manage the volatility in the currency.
At the Investors and Exporters FX window, total turnover or volume of dollar transacted declined by 27.2per cent week to date to $507.94 million on Thursday, with trades consummated within the N410.00 – N453.25 per the United States dollar. #
Pressures Cripple Naira as Markets Spot Dollar Scarcity
