Foreign exchange pressure in Nigeria has piled up as some dealers have quoted a bid price of N900 per dollar.
The Economist Intelligence Unit (EIU) has predicted that the naira will cross 1,000/$ by 2027.
The average rate is forecast at N815 to $1 in 2024, sliding to N1,018 to $1 by the end of 2027, with a spread of 10-15 percent against the black-market over the period, according to a new report by EIU.
The naira had crossed 800/$ at the Investors’ and Exporters’ (I&E) forex window, Nigeria’s official FX market, on July 14, 2023. At the parallel market, popularly called the black market, the dollar traded around N870 as of Monday.
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During the FX auction on Friday, willing buyers and sellers maintained bids as high as N799.50/$, which was stronger than N869/$ on Thursday and N845/$1 bid on Wednesday.
The market auction also recorded lower bids of N465/$, stronger than the N730/$ bid maintained on Thursday and Wednesday at the I&E window.
One of the customers of a tier one bank with strong regional footprint on July 25 bid at N800/$ but it was rejected on July 27.
On Monday, the customer was advised by his bank to bid at N900/$. “These people are making the dollar high,” the customer told BusinessDay.
“Until there is enough supply to meet FX demand, the ability to stabilise the exchange rate will be difficult and might force the CBN to use its limited reserves to intervene to stabilise the rate,” Yemi Kale, partner and chief economist, KPMG Nigeria, said.
He said the demand also comes from speculators who are watching the supply and have observed it will be difficult to keep rates stable.
According to him, supply has to come from oil sales but also more from autonomous sources including foreign portfolio investment and foreign direct 8nvestment as well as home remittances and export oriented enterprises.
“Unfortunately, for now confidence is very low and as a result, foreign investors as well as most domestic investors prefer to hold dollar-denominated assets so as to hedge against inflation and depreciation of their assets. All of this is fuelling demand and inadequate supply. Until confidence and steady inflow is observed, it is likely this will continue for now,” Kale said.
FX inflow into the Nigerian economy decreased by 3 percent quarter-on-quarter (q/q) and 7 percent year-on-year to $17.2 billion in the first quarter of 2023, according to data from the Central Bank of Nigeria (CBN) compiled by FBN Quest.
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The figure consisted of autonomous FX inflow of $10.0 billion, down 12 percent q/q, and FX inflow through the CBN of $7.2 billion, which was up by 15 percent q/q.
Excluding Q3 2022 when FX inflow fell to a low of $16.9 billion, the Q1 2023 FX inflow represents the lowest quarterly inflow since Q1 2017.
The downward trajectory of FX inflow since Q1 2020 is mainly attributed to structural issues, including low accretion to the gross official reserves from crude oil sales.
Additionally, until recently, restrictive FX policies by the monetary authorities limited the free flow of FX out of the country and discouraged foreign portfolio investors from importing more capital into the country, analysts at FBN Quest said.
