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Nigerian naira fell due to an imbalance in demand and supply levels at the Investors’ and exporters’ foreign exchange (FX) window, traded at N462.78 per United States dollar.
The local currency slumped after Africa’s largest country by size of gross domestic production, population recorded moderate foreign currency inflows into the external reserves last week.
The apex bank continues to ration foreign currency among users to curb the Nigerian naira from falling freely. Recently, local lenders told customers that business and personal traveling allowance was reduced by 50%.
Apex Bank said to delay and deny some requests for foreign currency. According to analysts, there have been records of FX refunds for unsuccessful bids in its secondary market intervention in 2023.
At the official window set up for manufacturing, and importers six years ago, the exchange rate was seen at #462.78, giving up the previous week’s gain due to higher FX demand by local requisitors.
The supply side has seen an improvement in forex support from the Central Bank of Nigeria (CBN) recently, helping the local currency to reclaim value having peaked at #464 to a United States dollar.
With about $10 billion estimated as an FX swap, the future of Nigeria’s currency remains bleak. Especially, as the oil market begins a fresh downtrend due to uncertainties over demand levels.
Two major global oil consumers have been reeling in some economic mess that continues to signal demand would be affected.
Nigeria has yet to meet the OPEC daily quota of 1.88 million barrels per day (mbpd) though the government has continued ramping up production volume.
The same experience was seen in the parallel market as demand began to rise. Spot FX rates were up in some of the Bureau de Change operators tracked. Market players at the open market exchanged naira for the US dollar at #742, compared to the previous close of #740 for the greenback.
Still overvalued according to market consensus, there is limited upside potential for the Nigerian naira due to a lack of productive based to drive foreign currency inflows.
Declining interest by foreign portfolio investors with large US Dollar transaction tickets that have declined below the pre-pandemic period continues to affect the local currency performance in the forex market.
In addition, remittances are already falling backward due to pressures in the global economy. The market is however anticipating FX reforms after the inauguration of the president-elect later this month.
Multilateral lenders, the International Monetary Fund/World Bank Group recently hinted that most of the citizens in Nigeria have switched from maintaining savings in naira to foreign currency.
Meanwhile, analysts projected that the central bank would be unable to maintain exchange rate stability if global oil prices remain near current lows in the months ahead
Naira breached a key level of 464 in the first quarter as the inflation rate accelerated to 22.04% last month. In 2022, the local currency was down by about 11% year on year, reducing purchasing power amidst a worsening consumer price index.
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