Naira gains as external reserves rise by 2.9%

Naira on Wednesday gained marginally against the dollar at the official market following an accretion in external reserves.

Nigeria’s external reserves increased by 2.9 percent in one day to $36.67 billion as of March 28, 2023 compared to $35.64 billion recorded on March 27, 2023.

The accretion of external reserves was attributed to a reported $1 billion inflow from oil sales and exports.

Consequently, naira appreciated by 0.11 percent as the dollar was quoted at N461.24 on Wednesday as against the last close of N461.75 on Tuesday at the Investors and Exporters (I&E) forex window, data from the FMDQ indicated.

Most currency dealers who participated at the foreign exchange market auction on Wednesday maintained bids between N459.50 (low) and N462.13 (high) per dollar.

At the parallel market, also known as black market, naira steadied at N745 per dollar on Wednesday.

“The currency will continue to face pressure from high import costs and demand for foreign currency for services but the CBN will continue to intervene in the FX market to limit the pace of depreciation,” analysts at the FSDH research said in a new report.

The possibility for crucial exchange rate reform in the first quarter of 2023 (H12023) is limited and such reform can only happen in the second half of 2023 on the insistence of a new President. Currently at US$36 billion, external reserves which can finance about 6-7 of imports of goods and services will also face pressure in 2023.

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According to the report so far in 2023, there has been pressure on external reserves, which declined from US$37.1 billion in January 2023 to US$36.1 billion on March 15, 2023.

Interventions in the FX markets, as well as limited foreign exchange inflows are key factors that exert pressure on the reserves.

“We note, however, that rising oil production in the last few months (if sustained) raises the prospect of reserves accretion in the second half of 2023 (2023H2), the analysts said.

Scarcity of foreign currency in the official market coupled with a high exchange rate which has hovered N750/US$ in the parallel market continue to drive high input costs/imported inflation.