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Naira worsens as FX rates cross the Rubicon

THE Nigerian Naira deteriorates across foreign currency (FX) markets on Monday, owing to weak demand for the US dollar and other main currencies, as well as an increasing headline inflation rate that spells doom for buying power.

There are signs that the naira is under pressure in the currency market due to pre-election demand for the dollar, despite Nigeria’s high inflation and decreased foreign currency accretion into FX reserves.

Some analysts revealed that the monetary authority is only delaying the inevitable, despite the fact that the naira has remained overvalued despite rising import costs.

At the Investors and Exporters foreign exchange market, the local currency crosses the Rubicon at N421.50. According to statistics from the FMDQ Exchange website, FX rates had printed at N419 on Friday.

Despite a reasonably significant foreign reserve of roughly $40 billion, analysts believe the naira would be depreciated due to its weak market position.

“The CBN is confused about how to manage the local currency, stabilize the price level, and encourage economic growth,” investment banking experts told MarketForces Africa.

A halt in dollar inflow into the country’s foreign reserves caused the exchange rate to cross N600 to a US dollar in the parallel market.

On Monday, market data showed that the open indicative rate was N417.30 to the dollar, with a high of N444.00 to the dollar recorded during the day’s trading before it closed at N421.50.

During the day’s trade, the Naira fell as low as 410 to the dollar. At the official Investors and Exporters window, a total of 70.68 million dollars was transacted in foreign exchange.

According to the National Bureau of Statistics, the headline inflation rate increased to 16.38 percent in April, ahead of the Central Bank of Nigeria’s monetary policy committee meeting.

Coronation Research said in a market noted that the CBN’s in-house estimates suggest that inflation is expected to remain considerably high in the short term, due to the persistence of supply-chain bottlenecks that have been exacerbated as a result of the Russia-Ukraine crisis.

Prior to the Russia-Ukraine crisis, the MPC expressed optimism around a sustainable decline in inflation due to the positive impact of a good harvest on price levels. However, rising inflation is expected given upticks recorded in global commodity prices and a shortage of supply of petroleum products, analysts said.

The NBS tracks headline inflation by state, with Bauchi recording the highest at 18.93% year on year and Sokoto recording the lowest at 14.66% in April 2022.

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