• Monday, June 17, 2024
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Naira loses 0.67% against dollar as trading week ends

Naira loses 0.67% against dollar as trading week ends

The foreign exchange market ended the five trading week on Friday, with the the naira, Nigeria’s currency, losing 0.67 percent week-on-week against the dollar at the parallel market.

After trading on Friday, naira closed at N750 per dollar, lower than N745/$ it closed with last Friday (January 13, 2023) at the unofficial market, also known as the black market.

On a day-to-day basis, the naira weakened by 0.4 percent (N3) to close at N750 on Friday as against N747 closed on Thursday at the same market.

“There is demand. People are buying dollars now”, one of the Street traders in Lagos told BusinessDay on Friday.

The Nigerian Economic Summit Group (NESG) stated in its 2023 macroeconomic outlook report that the decline in forex supply will further support exchange rate depreciation.

The report said an FX shortage will support the black market operation, where the exchange rate will depreciate even at a faster rate.

At the Investors and Exporters (I&E) forex window, naira appreciated marginally by 0.09 percent week-on-week, as dollar was quoted at N461.50 per dollar on Friday compared to N461.90/$1 quoted last week Friday, data from the FMDQ indicated.

On a day-to-day trading, naira closed unchanged at N461.50 at the official market, also known as the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX).

The FX market turnover, which reflects the level of activity at the I&E window, increased by 34.12 percent, week-on-week to $96.81 million on Friday from $72.18 million recorded on January 13, 2023.

Data from the FMDQ showed that the daily FX market turnover declined 55.56 percent to $96.81 million on Friday from $217.86 million recorded on Thursday.

Read also: New Naira Notes: CBN threatens to sanction banks over non-compliance

NESG expects naira at the official market to fall to N500 per dollar as Nigeria’s external reserves, which stood at $37.21 billion as of January 17, 2023, is projected to decline to $34.9 billion at the end of 2023.

Foreign exchange (FX) inflows into the economy increased by 5.98 percent in the second quarter of 2022 but this has not reflected in naira stability as the currency has continued to depreciate at the official and parallel markets.

In 2022, Naira depreciated by 2.4 percent and 30.1 percent in the I&E and the parallel market rates to N451/US$ and N745/US$, respectively.

Consequently, the premium (the gap) between the official and the parallel markets expanded from N55 (18 percent of the official rate) at the beginning of the year to N294 (65 percent) at the end of 2022.

In December 2022, the monetary authority initiated the redesign of the N200, N500, and N1,000 notes to manage Naira liquidity.

The action, according to the NESG report, triggered further depreciation of the Naira against the US dollar in the foreign exchange market, especially the parallel market rate.

Aside from the CBN currency redesign, other issues that triggered Naira depreciation include US monetary policy tightening that strengthened the US dollar and the proliferation of political activities with the US dollar.

Godwin Emefiele, governor of the CBN, had 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. This pressure could be amplified by the forthcoming elections, especially as the political marketplace heats up.

“Notwithstanding these pressures, 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,” he said at a forum in November 2022.

“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.