The Nigerian local currency, the naira, weakened at the Investors and Exporters foreign exchange (FX) window at the beginning of the year, according to market data.
The decline came after the Central Bank of Nigeria (CBN) said in a report that in 2022, the balance in external reserves was down by $3.45 billion amidst rising import bills payment.
At $37 billion on Friday, Nigeria’s gross external reserves continue to trend below $40 billion mark since early February 2022, when it printed at $40.01 billion.
Cowry Asset Management analysts said in a note that at the current level, external reserves could cover on the average 8.4 months of merchandise imports on a balance of payments basis and a bit over 6 months when services are included (goods and services).
MarketForces Africa reported that the naira lost about 11% in 2022, though analysts believe that the apex bank intervention temperature dropped, the same time when foreign investors stayed aloof in the local economy.
CBN maintains strong rationing of foreign currency to keep the naira steady in the foreign exchange market while some multinational companies struggle to upstream dollar abroad, thus raised FX backlog.
Consequently, Nigerian banks told their customers via emails about decision to halt $20 minimum spend provided via their debit cards and also give insight that it will take 60-day to process FX for foreign school fees payment.
In the first quarter of 2023, demand for foreign currencies have been projected to rise due to expected increase in demand and opening of imports channels including election spending.
At the investors and exporters’ FX window the Naira slip for another week by N0.17 or 0.04% week on week to close at N461.67 from N461.50 in the previous week.
Nigeria’s FX reserve maintained an accretion, as the gross reserve position rose by $70.13 million to close at $37.15 billion. Nigerian Treasury Bills Yield Falls to 4%, Bonds Steady
On activity levels, the total turnover at the investors’ window declined by 43.5% to $290.93 million, on Thursday close with trades consummated within the N425.00 – N477.67 band.
Exchange rate worsened at the parallel market window as Naira lost 0.68% or N5 week on week to N742 from N737 last week. Currencies traders said FX market participants maintained bids between N465 and N470 at the Investors and Exporters segment.
In the Forwards market, the naira depreciated 0.5% at the 1-month to N470.35 and 1-year rate drop 0.2% to N530.67 per contracts while 3-month contract appreciated 0.1% to N479.54. Meanwhile, the naira was flat at N497.58 for 6-month contract.
Analysts maintained that FX liquidity issues will remain over the short-to-medium term over lack positive signal that denotes an improvement in FX supply relative to the pre-pandemic levels.
“… We do not rule out the possibility of another Naira devaluation in 2023 to allow the exchange rate to reflect current realities”, investment firm Meristem Securties said in an outlook for the new year.
The investment firm analysts said this opinion is based on two major factors: Firstly, Non-deliverable Forwards at the Naira settled OTC FX futures market as of December 30th, 2022, reveals that contracts maturing in one year closed at N529.55.
“In our view, this reflects investors’ pessimism about the direction of the Naira’s value against the greenback”.
Secondly, Meristem reveals that considering that the Naira has been devalued in 4 out of the past five years (either at the official or I&E Window), the high likelihood of further strains in FX supply, declining foreign investor confidence in the capital market and other weak macroeconomic variables, signals the possibility of another currency devaluation
