There appears to be no silver lining for Nigeria’s currency challenge as the Naira exchange rate woes continued last weekend, reflecting the harsh reality of its weak economic fundamentals.
This is coming after the exchange rate closed at N808/$1 and N1,170/$1 at the official and parallel markets, respectively, signifying a 5.4 per cent drop on the official NAFEM window, the lowest levels recorded at the end of a week in Nigeria’s exchange rate market history.
The last time the exchange rate closed the week above N800 was on July 14, 2023 when it settled at N803.90/$1. Investigations done by Daily Sun revealed that the exchange rate fell to an all-time low last week with closing day rate of N848.12 on October 17, 2023 and also hitting an intra-day low of N999 during the week.
However, at the parallel markets, where the foreign exchange is unofficially traded, quotes ranged from around N1,040 to N1,175/$1, with some transactions quoting as high as N1200/$1. This represents a remarkable 10.1 per cent depreciation within a week, a trend last witnessed around November 2022 during a period of wild volatility.
It was gathered that the development has led to fears that the Naira might continue to face pressure resulting in further disparity in the NAFEM and parallel market rate. Several traders who spoke to Daily Sun, noted that they have been having slight FX supply to trade as the demand continues to soar. Furthermore, the unification of the exchange rate into a single window and subsequent depreciation of the Naira have led to substantial foreign exchange losses for major consumer goods companies in the country.
This situation has had a severe impact on their financial performance, resulting in substantial pre-tax losses. With the Naira continuing to depreciate against other foreign currencies, there is a concern that the nation’s economic challenges may persist and even worsen. The ongoing depreciation is expected to put additional pressure on companies’ financial performance, thereby amplifying the already significant FX losses they have experienced.
Analysts at Afrinvest, speaking on the current development, attributed the situation to dwindling FX reserves, sustained high demand for FX at the parallel market and the absence of guidance from the monetary authorities on a quick-term fix measure.
According to data obtained from the CBN’s website, the country’s FX reserve improved further last week as the gross reserve level increased by $18.31 million week-on-week (w/w) to $33.24 billion (18 October, 2023). The external reserves have remained at the $33.3 billion level since September 6th, 2023, indicating that the apex bank has yet to inject the expected supply into the market.
It will be recalled that the country’s external reserve was $35 billion when the Tinubu administration took office on May 29th, 2023. Since then, the exchange rate at the parallel market has plummeted by 36 per cent.
Commenting, analysts at Cordros Research, said, given the CBN’s unbanning of importers of all the 43 items previously restricted from the NAFEM in 2015, the market realised that FX supply is still minimal at the official market faster than anticipated.
They said, “Accordingly, importers have returned to the parallel market to fulfil their FX obligations. In addition, the incentives for holding the naira continue to be limited by the day, coupled with the panic-buying arising from the expectations of further currency pressures amidst limited FX supplies. Consequently, barring any significant FX inflows or convincing action by the policymakers to turn the tide, we expect the exchange rate pressures to linger in the short term”.
Source: Sun News Online
