The Nigerian naira was traded at N461.50 versus the US dollar in the Investors’ and Exporters’ foreign currency (FX) window on Friday. According to experts, this represents a N293.50 premium above the open market rate.
Due to its shortage, local money is presently difficult to use for transactions throughout Nigeria. These pressures have persisted, in part because of a policy reversal. Due to Nigeria’s heavy reliance on imports of goods and services, the demand for foreign currency is still inelastic, although both internal and external variables have an influence on inflows into the regional economy.
The foreign reserves of Nigeria have decreased even more, according to data from the Central Bank of Nigeria (CBN), to $36.8 billion, the lowest level since the third quarter of the fiscal year 2021, experts said.
According to the apex bank’s directives, local banks stopped accepting dollars for debit card transactions, but pressure on the naira on the black market persisted. As Nigerians scrambled for local money in the cities, the exchange rate deteriorated in a week to N755 versus the US dollar. Naira traded unchanged at 461.50 at the investors’ and exporters’ FX window.
As a result, according to Afrinvest, the difference between the parallel market rate and the official rate increased to 293.50 from 290.83 the previous week. The analysts at Afrinvest said they anticipate the ongoing FX shortage to cause a slight decline in the parallel market rate in the coming week.
Cordros Capital informed investors in its market brief that inflows into the Investors & Exporters Window decreased 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.
