The value of the Naira has increased considerably as economists express renewed hope about the future of the Nigerian currency.
Nigeria’s currency has soared in value as analysts foresee a depreciation of the currency at the Investors Window.
Despite the fact that the naira has gained value against the US dollar over the weekend, analysts are dissatisfied with what they perceive to be a disproportionately expensive local currency, and they anticipate further devaluation at the Investors and Exporters foreign exchange rate window on Monday.
According to data from the FMDQ Exchange platform, the Naira traded at a rate of 414.01 to the dollar in the Investors and Exporters window this week, representing a 0.24 percent increase from the previous week’s record rate of 414.40.
As a result of an inflow of $4 billion in foreign currency borrowings as well as an inflow of approximately $3.5 billion in special drawing rights, the naira has come under increasing pressure, briefly breaking through the N420 mark at the foreign exchange window for investors and exporters in December.
Following an eight-week sequence in which the reserves increased, according to a macroeconomic research report published this week by Cordros Capital, Nigeria’s foreign currency reserves have declined for the first time in ten weeks, falling by $102.20 million week on week to $41.73 billion, following an eight-week sequence in which the reserves increased.
The foreign currency rate on the secondary market has decreased dramatically in recent months, following the announcement by the central bank that it would no longer offer weekly dollar supplies to bureau de change operators. According to the International Monetary Fund, despite rising oil prices on the global market, the supply of dollars has remained at historically low levels in recent years.
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According to the October Stanbic IBTC Purchasing Manager Index, which revealed that foreign exchange constraints were impeding the development of the private sector in Nigeria, the cumulative impacts of foreign exchange pressure have resulted in a rise in production costs.
Godwin Emefiele, the Governor of the Central Bank of Nigeria, indicated in a speech to a conference in June 2021 that the spot naira rate in Nigeria was overvalued by up to ten percent.
Aside from a 13 percent devaluation in the interbank foreign currency market, which has dropped the value of a dollar to N430, there has been no official depreciation since the announcement.
Although the interbank foreign exchange window has seen a decrease in the value of the dollar, some observers feel that the policy authority’s multi-tiered exchange rates have converged as a result of the decrease in the value of the dollar.
Despite a significant drop in the Central Bank of Nigeria’s engagement in the Investors and Exporters foreign currency market in recent years, the naira has not remained stable in the Nigerian Autonomous Foreign Exchange Fixing.
According to a study conducted by Cordros Capital, analysts expect that the local currency would be devalued in the near future to a level closer to its fair value of N456.67 in the coming months.
Meristem analysts, according to reports from MarketForces Africa, expected the higher denomination in order to keep the local currency from free-falling in the face of significant inflation.
Because of this, the Naira gained 0.19 percent against the dollar this week, closing at N414.30 per dollar at the Investors and Exporters Foreign Exchange Window. As a result, the country’s external reserves increased to $41.73 billion as of the Central Bank’s announcement on Thursday, November 4, 2021.
In addition, the currency rate in the parallel market fell (the Naira rose), and the market concluded at N562.00, down from the previous day.
N430.00 per dollar on the Interbank Foreign Exchange market, despite a weekly injection of $210 million by the Central Bank of Nigeria, the Naira finished the week unchanged at N430.00 per dollar.
Out of the total, 100 million dollars were allocated to Wholesale Secondary Market Intervention Sales (SMIS), $55 million was distributed to Small and Medium-Sized Enterprises (SME), and $55 million was sold for Invisibles (invisibles are securities that cannot be seen).
As long as the Organization of Petroleum Exporting Countries and their allies (OPEC+) remain committed to cutting global crude oil production output, analysts at Cowry Asset Management Limited expect that the Naira will remain stable versus the dollar in the coming week.
Furthermore, according to the firm’s analysts, an increase in Nigeria’s production quota will lead to an increase in the country’s foreign profits as a result.
According to the most recent available data, total turnover at the Investors and Exporters foreign exchange window has decreased by 38.9 percent week to date, before printing at $486.13 million on Thursday. Trades completed within the N404.00 – 453.10 zone accounted for the majority of the decline.
Because of the recent depreciation of the Nigerian currency at the SMIS window, the 1-month contract in the forwards market gained +0.1 percent to N416.07, the 3-month contract gained +0.5 percent to N422.22, and the 6-month contract gained +0.5 percent to N431.48. The 3-month contract gained +0.5 percent to N422.22, and the 6-month contract gained +0.5 percent to N431.48.
Meanwhile, the 1-year contract depreciated by -0.9 percent to N450.72 per dollar, resulting in a -0.9 percent loss on the dollar exchange rate.
Because foreign inflows are so important to the country’s economy, analysts at Cordros Capital believe that sustainable foreign exchange liquidity in the medium term will be dependent on inflows from abroad.
Prior to the epidemic in 2001 and 2002, it has been suggested that foreign portfolio inflows accounted for 53.8 percent of all foreign exchange inflows to the Investors and Exporters FX window, with the remainder coming from other sources.
As Cordros Capital stated in a statement, “We believe that further adjustments in the exchange rate peg closer to its fair value, as implied by a real effective exchange rate of N456.67 per dollar, as well as currency flexibility, would be significant in attracting foreign inflows back to the market.”
It is as a result of this that the Central Bank of Nigeria’s Investors and Exporters foreign exchange rates will be devalued by between N440.00 and N460.00 per dollar in the short to medium term, as predicted by analysts at the firm. The Naira is gaining as analysts predict a depreciation through the Investors Window, which is a positive development.