According to data from FMDQ, where daily spot prices are reported, the Nigerian naira saw increases across the board, which led to a significant decline in the FX gap to N12 at the start of the week. The fluctuating local currency exchange rate is a result of strong demand and unstable market supply.
The weakening of the currency has put pressure on rates, and the Monetary Authority’s attempts to stabilize exchange rates across the forex market have yielded no positive outcomes. With the present exchange rate hovering at N1600, the balance sheets of certain companies have been harmed.
Manufacturers are cutting back on productive activity, and Deposit Money Banks (DMBs) with foreign currency exposure are writhing. As order returned to the alternative markets on Monday, the parallel market also reported another favorable change in the FX rate.
Based on data tracked on the FMDQ platform, the Naira appreciated by 0.58% to close at ₦1,617.96 per dollar at the official market. In the Parallel market, the Naira closed at ₦1,605 to the US dollar.
Financial Derivative Company (FDC) Limited under the watch of Bismark Rewane, a top economist in the Nigerian market has projected that the local currency is undervalued. The derivative company’s prediction came following Goldman Sachs’s estimation that the naira would claw back losses, and settle at N1200 per US dollar in 12 months.
Using purchasing power parity (PPP) to estimate exchange rate, FDC said N910.10 is the true or fair value of the naira, supporting the “grossly undervalued’ claim of the apex bank governor, Yemi Cardoso. The firm said, theoretically, the naira is more than 40% undervalued.
The Central Bank of Nigeria (CBN) governor told the newsmen in Abuja after the conclusion of the February monetary policy committee meeting that the naira is grossly undervalued due to the activities of currency speculators.
The CBN FX reform has not started to reflect on exchange rates across the market due to sustained shortage of the US dollar, which has become a pressure cooker for the country which depends heavily on imported goods.
However, foreign investors have started to flock to the debt market as the monetary authority seeks to reduce negative interest yield on naira assets to attract foreign inflows. The CBN has been selling Treasury instruments at steep rates, and this has attracted more forex inflows into the country.
However, some analysts are negative about this carrot-dangling method because of its repercussions. MarketForces Africa gathered that debt service costs may be heavy on the CBN balance sheet as a result of high-interest rate on Treasury bills.
In the global commodity market, oil prices decreased, as Brent crude fell by 0.79% to $81.43 per barrel. Also, US West Texas Intermediate (WTI) crude also dropped by 0.92% to $77.29 per barrel amidst uncertainties in the global economy and lingering Middle East conflict.
Nigeria’s foreign reserves are still hovering above the $34 billion mark, with the hope that increased production and steady market prices will boost inflows in the second quarter of 2024.
