Naira Slumps To N1,340/$1 At Parallel Market, FX Shortages Persist
Hopes of local and international businesses getting foreign exchange suffered a set-back as the naira slumped to fresh lows against the US dollar at the official and parallel markets at the weekend. This comes as the Central Bank of Nigeria (CBN) deepens efforts to clear FX backlogs which has been weakening the naira for months.
Although brent crude oil price had inched higher by 1.6 per cent week-on-week (w/w) to close at $78.5/bbl to drive Nigeria’s foreign reserve in maintaining its bullish run, gaining about 41 basis points w/w or $82.42 million to close at $33.2 billion, the Naira continued to face increased pressure due to the demand-supply imbalance.
According to data obtained from the FMDQ’s website, the naira depreciated by 1.3 per cent to N902.45/$1 at the Nigerian Autonomous Foreign Exchange Market (NAFEM) with total turnover in the market decreasing by 36.4 per cent week-to-date (WTD) to $419.92 million as trades were consummated within the N701-N1,299.50/$ band.
Similarly, the naira depreciated at the parallel forex market where forex is sold unofficially, the exchange rate quoted at N1350/$1.
Reacting to the development, economic analysts say they expect the naira to remain pressured across FX segments due to CBN constrained capacity to significantly boost supply. Some business owners, importers and manufacturers have clearly expressed their concern over the non-availability of FX.
Due to the limited access of FX via the NAFEM window, many Nigerians currently rely on the parallel market for FX. That lack of liquidity contributed to the Naira losing around 50 per cent of its value against the dollar since the collapse of all FX windows which occurred last year.
The CBN, while stating that almost $2 billion made in payments as regards FX backlogs, stressed recently that it is doing everything within its power to clear outstanding requests for FX, including from companies who want to repatriate their profits.
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However, the backlogs remain significant following the Minister of Finance, Wale Edun’s comment during a recent interview with Bloomberg in which he stated that the backlog was in the region of about $5 billion.
This has led to Nigeria recently requesting $1.5 billion from the World Bank to help ease the FX shortage which has contributed to the Naira’s steep decline. Edun said, “We are hoping to get $1 billion or $1.5 billion from the World Bank for budgetary support. It is a matter of discussion at the moment, but we think we will get the support”.
Furthermore, as part of its bid to deliberate on the current challenges amongst others, the apex bank on Friday, announced that the long-awaited Monetary Policy Committee (MPC) meeting has been scheduled to hold on February 26 and Tuesday, February 27, 2024. This will be the committee’s first meeting under the new leadership of the CBN, headed by Olayemi Cardoso.
Since Cardoso’s appointment and subsequent confirmation by the Senate, the CBN’s Monetary Policy Committee had not held any meeting. Speaking to Daily Sun via a chat, the Head, Research and Investment at FSL Securities, Victor Chiazor, explained that the inaction from policy-makers and a focus on short-term moves have shaken investors’ confidence in the market.
“With the fast-paced change witnessed in the first few months of the administration, one would have expected positives but in all honesty and I have been saying it for quite some time now that our FX reserves which is at around $33 billion is not enough. While the net liquid position is far lower, this means that in real terms the CBN did not have the required FX liquidity to meet the current FX demand, not also forgetting the existing backlog of FX payments owed to businesses and so I am not surprised Nigeria is borrowing again”, Chiazor said.
For their part, analysts at Cordros Research, said, “We expect FX liquidity conditions to remain tight, pending receipt of expected FX inflows. Thus, we expect the pressure on the local currency to persist in the near term. Nonetheless, we expect foreign investors to keenly watch the development in the FX space with regards to the expected FX inflows as guided by the authorities, CBN’s recent actions in clearing its FX backlogs, and firm direction of short-term interest rates”.