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Naira fails to retain value despite CBN support

NAIRA, the Nigerian local currency, struggled unsuccessfully to maintain a stand against the United States dollar at the investors and exporters foreign exchange window but lost out.

Despite the Central Bank support, backing the local currency from falling further, the local currency falls by 0.1% this week to N415.10 at Nigerian Autonomous Foreign Exchange Fixing (NAFEX). 

There was a noticeable increase in demand for the greenback in the foreign exchange market, while external reserves dropped due to dollar supply – albeit below the eligible demand level seen.

Data from the FMDQ Exchange shows that volume of dollars transacted at the Investors and Exporters window jumped this week. 

At the investors’ FX window, total turnover increased by 32.3% from the beginning of the week to date to $1.16 billion, with trades consummated within the NGN404.00 – 464.75 per dollar band.

Also, Naira depreciated against the greenback by 1.23% to close at N572.50 a dollar at the parallel market. However, Naira for dollar rate closed flat at N430.00 at the Interbank Foreign Exchange market amid its weekly injections of $210 million.

Of the sum injected, $100 million was allocated to Wholesale Secondary Market Intervention Sales (SMIS), $55 million was allocated to Small and Medium Scale Enterprises and $55 million was sold for Invisibles.

Cowry Research note shows that the Naira/$ exchange rate moved in different directions across foreign exchange forward contract maturities. Specifically, spot rate, 1 month and 3 months contracts were flattish at N430/$, N416.08/$ and N421.31/$ respectively.

However, 6 months and 12 months contracts decreased (Naira appreciated) by 0.02% and 0.05% to close at N430.39/$ and N447.92/$ respectively while 2 months contracts depreciated by 0.06% to close at N418.70/$.

In the new week, analysts hinted that they expect Naira to weaken slightly against the dollar as crude oil price may fall slightly amid the threat of lockdown due to the new COVID-19 variant (Omicron).

FX reserve remained under pressure, declining by $187.63 million to $40.93 billion as the CBN continued to support the naira at the official channels, Cordros Capital said.

Rising imports bills payments and low accretion into external reserves from oil exports, foreign investments have been identified as pressure points for the local currency. 

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