• Tuesday, March 05, 2024
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BusinessDay

Naira weakens against dollar despite improved liquidity

Naira currently undervalued – Cardoso

Naira on Thursday weakened against the dollar across foreign exchange markets despite improved liquidity.

After trading on Thursday, naira lost 0.25 percent as the dollar was quoted at N463.67 as against the last close of N462.50 on Wednesday at the Investors and Exporters (I&E) forex window, data from the FMDQ indicated.

Most currency dealers who participated at foreign exchange market auction on Thursday maintained bids between N459.82 (low) and N466.00 (high) per dollar.

The daily foreign exchange market turnover increased by 46.51 percent to $139.85 million on Thursday from $95.45 million recorded on Tuesday.

At the parallel market, also known as black market, naira depreciated by N1 as the dollar traded for N738 on Thursday compared to N737 on Wednesday.

Read also: NBS to release unemployment data May

The naira last week appreciated against the dollar at the parallel market as some of the dollars said to have been spent by politicians during the elections have come into the market.

The naira strengthened to 735 per dollar on Friday last week, compared to 742/$1 on Tuesday, at the parallel market.

The International Monetary Fund (IMF) said that there were large exchange rate spreads in parallel markets in some countries like Burundi, Ethiopia, Nigeria at times, reaching 90 percent in 2022.

The IMF said this in its regional economic outlook report for sub-saharan Africa, released at 2023 Spring meetings in Washington D.c.

In Nigeria, the exchange rate spread between the official and parallel market remained high at N273 per dollar.

The IMF said most currencies weakened in 2022 against the US dollar—the dominant currency for trade invoicing and external

debt.

In the report, the IMF said the official exchange rates in non-pegged countries, where the exchange rate is not fixed to another currency on a de jure basis, depreciated 7 percent on average year over year by the end of 2022, exceeding 20 percent in some cases.

The report noted that pegged countries—where the exchange rate is fixed (mostly to the euro or the South African rand)—also saw their currencies weaken against the US dollar.

The exchange rate pressures also manifested in the depletion of reserve assets, as foreign exchange inflows slowed, and central banks used their reserves to finance imports and repay foreign debt.

According to the IMF an index — combining depreciation against the US dollar and reserve depletion — shows that exchange rate pressures were at a six-year peak in 2022, on average, and were higher in pegged regimes and non-resource-intensive countries.

“While this note focuses primarily on developments in 2022, pressures against the US dollar have persisted in the first months of 2023 in many countries,” the IMF said.

Exchange rate pressures stem from both global and domestic factors, the Fund said adding that the combination of monetary policy tightening in advanced economies and greater global risk aversion decreased net foreign exchange inflows to the region and priced out frontier economies from the international capital market.