Nigeria’s economy, which has the greatest GDP in all of Africa, has continued to be spending-oriented. This moment, the government and its departments are in a good position to spend either local or foreign money to an extent exceeding revenue creation.
The Nigerian government has increased borrowings in the local debt capital market to finance the budget deficit for 2023. Yet, pressure from the outside market has prevented the country from issuing Eurobonds in 2023; the country’s most recent trip to the global debt capital market was a year ago.
Nonetheless, foreign currency expenditure is necessary to pay for external commitments, and US dollar inflow has been constrained by an unclear exchange rate policy.
After the withdrawal of $1.1 billion from the external reserves in a single day last week, the native currency of Nigeria, the naira, fell last week against the US dollar in the foreign exchange markets.
According to information gathered by MarketForces Africa from FX analysts, there are no immediate or short-term catalysts that will propel foreign exchange into Nigeria or positively influence naira price actions.
The Nigerian naira is still perceived as slightly negative by the market even though it climbs far more slowly than it falls. The Central Bank of Nigeria (CBN) has attempted to combat currency depreciation without success.
However, exchange rates continued to worsen – due to the gap between demand and supply. Though a clear problem, generating more foreign currencies to assuage demand pressures has been a tough task – unachievable over the year.
And, with no specific currency programme or potential forex inflows, the CBN has continued to chase the air. For most analysts, the apex bank is merely postponing the inevitable – expected depreciation of the Nigerian naira.
Also, at the investors’ and exporters’ FX window, the Naira depreciated slightly by N0.05 or 0.01% week on week to close at N461.38 from N461.33 over growing FX demand pressures.
Meanwhile, Nigeria’s external reserves declined after a huge amount of US dollars left the Central Bank of Nigeria (CBN).
Meanwhile, there was a similar inflow in the like sum, barely two days, the nation’s foreign reserves was debited for possible import bills payment, FX backlog settlement and perhaps weekly FX sales to local banks to support the naira.
After banks announced a decision that FX allowance to personal and business travellers has been cut by half, the naira hasn’t changed much in the open market. On Friday, the local currency depreciated by N0.02 or 0.3% in the parallel market, closing the week at N748 from N746 in the previous week in the face of a currency crunch.
A look at activities at the Interbank Foreign Exchange Forward Contracts market, the spot exchange rate remained unchanged closing at N462. The outlook for the naira is bleak given that oil production is still behind OPEC’s daily quota.
Oil price movement saw a rebound of the commodity to trade at $79.28 per barrel on OPEC not increasing production in the midst of confidence returning to the global banks and higher demand as China’s economic recovery expands.
On the other hand, Bonny Light crude price react positively to factors playing in the oil market as it plummeted by 7.6% or (USD5.61) week on week, to close at USD79.57 per barrel from USD73.96 barrel last week.
Analysts said they expect the naira to trade in a relatively calm band across various market segments barring any market distortion as the CBN continues its weekly FX market intervention to defend the value of the naira.
The Naira appreciated against the dollar on Friday, exchanging for N461.38 at the investors’ and exporters’ window. The rate represented an increase of 0.03 per cent when compared to the N461.50 it exchanged to the dollar on Thursday.
The open indicative rate closed at N461.30 to the dollar on Friday. A spot exchange rate of N466 was used for trading within the day before it settled at N461.38.
The Naira sold for as low as N459.50 to the dollar within the day’s trading. Nigerian naira gains remain hard to come by across markets due to FX illiquidity.
