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The Nigerian naira continues to exhibit significant daily volatility, depreciating by 3.5% to N768.44 at the Investors’ and Exporters’ foreign exchange (FX) market on Tuesday (July 4, 2023), following a previous rally.
Data from the Central Bank of Nigeria (CBN) reveals that gross external reserves have already fallen to $34 billion, despite improved export earnings recorded in June, as the maturity of the Eurobond payment approaches.
Next week, Nigeria’s senior unsecured $500 million Eurobond, issued at a coupon rate of 6.375% to support government finances, will become due for repayment in the international debt capital market.
Several analysts on Broadstreet expressed their belief that the repayment will not trigger immediate issues, although the value of repayment in naira terms has increased due to the CBN’s decision to float the local currency.
In the parallel market, the naira remained relatively stable at N775 against the United States (US) dollar, indicating the positive impact of FX market liberalization. While FX stop rates have converged, there remains unsettled dust in foreign currency supply.
A group of forex traders anticipate that the reintroduction of the “willing buyer, willing seller” model at the official window will influence the direction of the exchange rate in 2023. Furthermore, investment banking experts believe that the success of the CBN’s FX reform depends on clearing the forex backlog owed to foreign investors.
“… while the CBN’s abolishment of its multiple FX windows is positive in boosting foreign investors’ confidence, we think they will adopt a wait-and-see approach, for now, looking for signals on the CBN’s plans to start clearing the FX backlogs and boosting FX supply to support the market in the near term,” stated Cordros Capital.
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