Naira Tumbles as Demand Outruns FX Market Supply
Keeping to the existing trading patterns, the Nigerian naira tumbles to N441.67 per United States dollar at the Investors’ and Exporters’ foreign exchange (FX) window on Tuesday as demand outpaced the supply level.
FX trading data from FMDQ Exchange tracked by MarketForces Africa showed that at the end of June 2022, market participants exchange naira for dollars at the rate of N415.61. At the current rate, the naira value has dropped by 6.3% from spot rate at the end of June 2022.
FX traders and currency analysts expect the naira to decline further, either by official devaluation or by the forces of demand and supply at the Investors’ and Exporters’ FX Window.
With the expectation that the naira will be devalued by 20%, traders have begun to run riot in currencies trading across FX markets. The Bank of America recently projected that the naira will be depreciated by 20% to match its fair value.
Broadstreet analysts’ agree with the overvaluation of the local currency but with different degrees of devaluation. In spite of the market expectation, the Central Bank of Nigeria under Godwin Emefiele has maintained a ‘no naira devaluation policy’
Unfortunately, the FX market has continued to punish the local currency as the exchange rate worsened.
MarketForces Africa recalls that the Investors and Exporters segment of the foreign exchange market appreciated slightly from ₦415.72 in March 2022 to ₦415.53 in April. READ: Treasury Yield Tumbles as Naira Steady Against Dollar
The exchange rate depreciated further to ₦415.95 and ₦415.61 in May and June 2022 respectively, according to market data. On Tuesday, the Naira declined by 0.07 per cent, compared with N441.38 to the dollar it exchanged on Monday. The open indicative rate closed at N440.58 to the dollar.
An exchange rate of N447 to the dollar was the highest rate recorded within the day’s trading before it settled at N441.67. The Naira sold for as low as N423 to the dollar within the day’s trading. A total of 79.41 million dollars was traded at the official Investors and Exporters window on Tuesday.
Nigeria is suffering from a foreign currency squeeze despite the country being a major oil producer. Governance and corruption challenges largely explain why August oil production, at an estimated 1.2 million barrels per day, was about half of its peak in 2006.
Nigeria, the most populous country in Africa, is also providing subsidies on petrol and propane to the tune of around 2% of GDP.
Other long-standing challenges, such as structurally low tax collection and a weak investment climate, have deterred investment in non-commodity sectors, while the multiple exchange rate regime complicates operations for the export sector.
# Naira Tumbles as Demand Outruns FX Market Supply#
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