Business
Naira faces further devaluation over rising FX demand
Nigeria’s Naira may have enter entered a devaluation hotspot after it breaks from behind a N450 level in the official window for importers and exporters on Friday.
The local currency traded at N450.33 to the United States Dollar at the official window on Friday.
Trading data from the FMDQ Exchange platform shows that the Naira depreciated by about 0.2% over a sustained increase in demand for foreign currencies by market participants. Traders hint about rising demand at the parallel market ahead of yuletide.
In the second half of 2022, the naira has lost about 9%, from an exchange rate of N415 that was marinated at the Investors and Exporters FX window as monetary authority slowdown on market interventions.
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As a result of its fresh red line crossing, FX gas has widened and analysts have raised their devaluation frenzy louder, saying there is no indication that the local currency will recover.
Naira is stretched across the foreign exchange market while Nigeria’s galloping headline inflation rate continues to weak purchasing power, reducing the real value of individual and corporate wallets.
Bank of America recently said the naira is 20% above its fair value in the official foreign exchange market with an expectation that by the end of the first quarter in 2023, the Central bank would have corrected the overvaluation.
The International Monetary Fund (IMF) also advised the apex bank to end the multi-tiered exchange rate system and adopt a unified rate for transactions to attract foreign investors into the economy.
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All the bits of advice have fell flat on Godwin Emefiele’s ears as Governor of the Central Bank of Nigeria but experts believe that the apex bank is only postponing the inevitable.
Some investment banking analysts who preferred not to be mentioned said usually, the local currency often weakens against the US dollar in the latter part of the year as an import-dependent nation.
“You cannot imagine the amount of US dollars that will flow out from Nigeria in December on individual request and perhaps some foreign-owned interest may seek to repatriate funds abroad.
“It is simple, apart from possible foreign currencies earnings from exports, and perhaps remittances, imports payment is much more likely to happen – and dollar demand for the 2023 election will start to gather momentum given the apex bank’s redesigned naira notes and limit on withdrawal”.
In the second half of the year, efforts have been geared toward a reconfiguration of the nation’s oil assets but prices continue to move in a reverse direction, resulting in marginal impacts on foreign reserves.
At the same time, external reserves continue to track lower while Zainab Ahmed, the finance minister has indicated that there is no plan to visit international debt capital market for Eurobond raise in 2023.
By May 29, 2023 finance minister appointment is likely to be terminated by the incoming president with a new economic blueprint.
Despite calls from analysts, Godwin Emefiele led Central Bank of Nigeria had refused to take steps to devalue the local currency.
CBN has also derecognised the activities of Bureau de Change operators, cited infractions including money laundering and terrorism financing.