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Naira recovers to N735 per dollar amid declining external reserves

Dollar nears N1,500 as scarcity hits black market

Naira on Monday recovered to N735 per dollar, gaining 21.08 percent over N890 per dollar quoted early November 2022 at the parallel market.

On a weekly basis, naira has gained 5.44 percent per dollar compared to N775 exchanged on November 25, 2022, the last Friday of that month.

At the Investor and Exporters (I&E) forex window, the naira gained 0.22 percent month/month against the dollar to N445.30/$1.00 last week as against N446/$ early November 2022.

Nigeria’s external reserves fell for the fourth consecutive month by 0.7 percent to $37.1 billion as of November 29, 2022, due to higher foreign exchange obligations, according to a report by Afrinvest Securities Limited.

The report noted that in November, Brent crude oil prices dipped 1.3 percent m/m to $92.12/bbl. following concerns on weakening oil demand levels in China due to its restrictive Covid-19 policy while the failure of the European Union to agree a proposed price cap on Russian crude oil weighed on market performance.

According to the monthly report, activity level in the I&E Window improved as total turnover rose 37.8 percent m/m to $2.0 billion.

Read also: Naira stabilises at N775 per dollar as supply rise

In terms of flows to the window, Foreign Direct Investments (FDIs), Foreign Portfolio Investments (FPIs), and other corporates recorded net inflows of $4.5m, $23.9m, and $12.8m, respectively. Similarly, CBN, individuals, and non-bank corporates amassed net inflows of $38.9m, $5.0m, and $54.1m whereas Exporters recorded net outflows of $122.5m, the report noted.

At the FMDQ Securities Exchange FX futures contract market, the total value of open contracts fell 1.9 percent m/m to $4.0bn due to the maturity of the November 2022 instrument ($387.5m).

The June 2024 instrument (contract price: N504.36) witnessed the most buying interest with additional subscription of $10.0m taking the total value to $10.5m.

“For December, we expect the rate at the I&E window to weaken further on the back of supply-demand imbalance in the FX market,” analysts at Afrinvest said.

In his outlook for 2023, Godwin Emefiele, governor of the Central Bank of Nigeria (CBN) said though the CBN has so far managed to maintain exchange rate stability, the current capital flow reversals from emerging markets are expected to continue to exert considerable pressure on market rates.

He said the pressure could be amplified by the forthcoming elections, especially as the political marketplace heats up. Notwithstanding these pressures, he said the CBN is determined to maintain its stable exchange policy stance over the next few months through innovative policy measures to manage the demand and supply of foreign exchange.

“If the current problem of oil theft is promptly corrected, we could expect a resumed inflow of crude oil receipts into the official reserves. This could foster gross stability in the foreign exchange market and enhance exchange rate stability,” Emefiele said.