The Central Bank of Nigeria (CBN) has not intervened in the market for six weeks, leaving supply and demand to determine exchange prices on all FX markets. It has been observed that the monetary authority is making a conscious attempt to achieve a market clearing rate with this move. This follows the central bank’s unsuccessful devaluation of the local currency in June 2023.
With the collapse of the official and illegal markets, the difference in exchange rates had surpassed 30%. As a result, when FX users consider access and FX rates, the difference between official and parallel market rates has decreased. As a result, the naira has had difficulty staying stable, although economists anticipate that supply and demand for FX will narrow the difference in rates in the official and black.
Naira may be facing a bleak outlook, which could see the official rate at above N1,000 in the first quarter of 2024, some analysts said, noting that Nigeria has to have a sufficient buffer to remove hands in FX market. On the other hand, Broadstreet analysts projected an increase in foreign currency inflows into Nigeria in December on an expected surge in remittance.
“If seasonality were anything to go by, December is supposed to provide a big opportunity for naira to stabilise and rerate as more US dollar flows in”, FX research analysts at LSintelligence said. Last week, the Nigeria Autonomous Foreign Exchange Market (NAFEM) rate traded within the range of N700-N1,160 but closed at N927.2 per US dollar, Coronation Research said in a Tuesday note. Analysts said this points towards a depreciation of -16.6% or N132.2 over a week.
In the forwards market, fx traded within the range of N790-N1105.9. In the 1-month contract, fx appreciated by +3.9% to close at N875.8, and in the 3-month contract, fx appreciated by +5.4% to close at N890.3. In the parallel market, the Naira hovered at an average of N1,165. FX rates records showed that the current gap between the NAFEM and the parallel market rate settled at 20.4%. According to data from FMDQ, NAFEM turnover increased by +13.0% or USD97.6m week on week to USD597.0 million on Friday.
The NAFEM window recorded an inflow of USD33.1 million, Coronation Research said in its recent update. Analysts maintained that there were no injections made by the CBN for the sixth consecutive week. Nigeria Eurobond Slumps after CBN Resumes OMO Auction According to Coronation Research, foreign portfolio investors (FPIs) accounted for 1.4% of inflow into the window, non-bank corporates accounted for 50%, exporters accounted for 34.5%, and others accounted for 14.1%.
