The value of the Naira has risen dramatically as analysts express renewed optimism.
The value of the naira has skyrocketed as analysts predict a devaluation at the Investors Window.
Although the naira has gained value versus the US dollar this weekend, analysts are not content with what they perceive to be a comparatively pricey local currency, and expect additional devaluation at the Investors and Exporters foreign exchange rate window.
According to data from the FMDQ Exchange platform, the Naira traded at N414.30 to a dollar in the Investors and Exporters window, representing a 0.2 percent rise week on week compared to the previous record of N414.30.
While the country’s external reserves have grown significantly as a result of an inflow of $4 billion in foreign currency borrowings and an inflow of approximately $3.5 billion in special drawing rights, the naira has been subjected to numerous pressures, briefly crossing the N420 mark at the foreign exchange window for investors and exporters.
According to a macroeconomic study published by Cordros Capital, Nigeria’s foreign currency reserves have fallen for the first time in ten weeks, falling by $102.20 million week on week to $41.73 billion, ending a streak of ten consecutive weeks of accretion.
Following the central bank’s decision to prohibit weekly dollar supply to bureau de change operators in July, the foreign currency rate on the parallel market has deteriorated. However, despite rising oil prices on the global market, the dollar supply has remained at historically low levels.
The cumulative effects of foreign exchange pressure in Nigeria have resulted in an increase in production costs, as indicated by the October Stanbic IBTC Purchasing Manager Index, which indicated that private sector development was hampered by foreign exchange constraints.
In a speech to a conference in June 2021, Godwin Emefiele, Governor of the Central Bank of Nigeria, stated that the spot naira rate in Nigeria was overvalued by up to ten percent.
Since the statement, there has been no official depreciation, with the exception of a 13 percent depreciation in the interbank foreign currency market, which has brought the value of a dollar to N430.
As a result of a lower exchange rate in the interbank foreign exchange window, some observers believe that the policy authority’s multi-tiered exchange rates have been converged as a result of the move.
The naira has not been stable in the Nigerian Autonomous Foreign Exchange Fixing, despite a noticeable reduction in the Central Bank of Nigeria’s participation at the Investors and Exporters foreign exchange market in recent times.
According to a research by Cordros Capital, economists predict the local currency will be devalued closer to its fair value of N456.67 in the near future.
Reports from MarketForces Africa stated that the higher denomination was predicted by Meristem analysts in order to prevent the local currency from free-falling in the face of a strong inflation environment.
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 the country’s external reserves increased to $41.73 billion as of Thursday, November 4, 2021, according to the Central Bank.
In addition, the exchange rate on the parallel market declined (the Naira strengthened), and the market closed at N562.00.
Despite a weekly injection of $210 million by the Central Bank of Nigeria, the Naira ended the week flat at N430.00 per dollar on the Interbank Foreign Exchange market.
100 million dollars was allotted to Wholesale Secondary Market Intervention Sales (SMIS), $55 million was distributed to Small and Medium Scale Enterprises, and $55 million was sold for Invisibles out of the total.
Cowry Asset Management Limited analysts predict that the Naira will remain stable versus the dollar in the coming week, as the Organization of Petroleum Exporting Countries and their allies (OPEC+) continue committed to reducing global crude oil production output.
More specifically, analysts at the firm believe that a rise in Nigeria’s production quota will result in an increase in the country’s foreign profits as well.
The entire turnover at the Investors and Exporters foreign exchange window decreased by 38.9 percent week to date before printing at $486.13 million on Thursday, with trades completed within the N404.00 – 453.10 zone, according to the latest available data.
Following the recent devaluation of the local currency at the SMIS window, the 1-month contract 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 in the forwards market.
Meanwhile, the 1-year contract depreciated by -0.9 percent to N450.72 per dollar, representing a -0.9 percent loss.
Although the Central Bank of Nigeria (CBN) has sufficient liquidity to maintain the market in the short term, analysts at Cordros Capital believe that sustained foreign exchange liquidity over the medium run will be dependent on foreign inflows given the importance of these inflows.
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 prior to the pandemic in 2001 and 2002.
In a statement, Cordros Capital said, “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.”
As a result, analysts at the firm predict that the Central Bank of Nigeria will devalue the Investors and Exporters foreign exchange rates between N440.00 and N460.00 per dollar in the short-to-medium term, according to the firm. As analysts anticipate depreciation through the Investors Window, the Naira is rising.