Due to pressure from US dollar demand on the official window’s exchange rate, the value of the Nigerian naira declined. On the other hand, the alternative market’s exchange rate continued to gain power.
Diverging rate movements caused the official and parallel market rates to jump to N30; the exchange rate data under evaluation demonstrates this. According to Bizwatch Nigeria, yesterday saw the foreign exchange market achieve a uniform rate, but the achievement was swiftly lost as the central bank reduced its participation in the foreign exchange market.
The US dollar did not find its way into Nigeria’s external reserves, despite accumulation by the Central Bank of Nigeria (CBN). The top bank declared that its overhaul has piqued the interest of foreign investors in the economy. The CBN went one step further and increased the interest rates on borrowing instruments in an effort to draw consumers hot money.
These steps yielded, though Fitch Ratings said in a note that despite all the CBN reform moves; it will take time for foreign investors’ confidence in Nigeria to return. Still, the FX challenge has persisted, causing the naira to lose value.
Upside potential has been limited at the official window since the adjustment to FX pricing methodology by FMDQ early in the year. This, and official devaluation has kept the naira hovering at N1600 on the average over a month.
Currency traders said the future of the naira depends solely on its ability to attract foreign inflows. For Nigerians, imports appear to be demand-inelastic. It would take some time for FX users to adjust to new rates in the currency market.
Demand has always been high, meaning there are other behavioural aspects to naira pressure. Government officials recently attended foreign training abroad, spending huge amounts despite foreign currency scarcity.
In the foreign exchange market, the naira depreciated by 0.78%, closing at ₦1,615.94 per US dollar at the official market, according to information from the FMDQ website. Meanwhile, the exchange rate closed at ₦1,585 to the US dollar in the parallel market. The price of oil saw an uptick in the global commodity market. Brent crude climbed 1.97% to reach $83.53 per barrel, and WTI crude also experienced a 2.29% increase, reaching $79.34 per barrel.
According to data from FMDQ, average NAFEM turnover decreased by -18.0% or -USD280 million week on week to USD1.2 billion on Friday. In its market update, Coronation Research said the autonomous foreign exchange window recorded an inflow of USD 705.9 million. Analysts highlighted that there was no inflow from the CBN in the previous week.
Foreign portfolio investors (FPIs) accounted for 52.2%, non-bank corporates accounted for 26.0%, exporters accounted for 19.0%, and others accounted for 2.8%, according to a Coronation Research note.
