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Naira worsens across FX markets as CBN battles cynics

AMIDST a plan to redesign the local currency, the Nigerian naira closed at N444.75 at the investors’ and exporters’ foreign exchange window, according to market data obtained by MarketForces Africa.

Weighing against the prior week’s position, the local currency depreciated by 0.70% or N3.08 week on the week against the greenback amidst unprecedented depreciation seen in the black market following Nigeria’s plan to redesign the naira.

The apex bank remembers its independent position as the monetary authority with a plan to redesign 200, 500 and 1000 notes to reduce criminal activities. However, the finance minister disparages the idea with open denial.

Consequently, the speculators in the foreign exchange market began to price-in the uncoordinated policy decision between the fiscal and monetary authorities and the naira suffered a bigger blow.

MarketForces Africa channels check discovered that at the parallel market, riotous currencies trading worsened the exchange rate position as the naira succumbed to demand pressure; losing by about 5% to close at N780 – while there have been different quotes from black markets traders.

Last week, trading data from the Investors and Exporters FX window showed that market participants maintained bids between N440 and N470 – a signal for further impending pressures amidst expected imports rise in the latter part of the year.

Data from the Central Bank of Nigeria (CBN) shows that the external reserve declined further by $67.22 million to $37.5 billion in countertrend to the upswing in Brent futures by 2.3% to $93.41 per barrel amid un-abating pressure on the Naira across FX markets.

Analysts told MarketForces Africa that by virtue of its independence, CBN has no need to inform the finance ministry about a plan to change the local currency design…It is solely within the monetary policy purview to do so with consent from the President.

“CBN has no reason to explain to anyone its decisions and plans about currency management”, analysts said while reacting to whether CBN goofed by not properly communicating the naira note redesign plan to the ministry of finance.

At the Interbank Foreign Exchange Forward Contracts market, the spot exchange rate traded quietly as it closed the week at N430 from last week’s close. It was noted that the exchange rate in the Naira FX Forward Contracts Markets depreciated across all tenor contracts. Consequently, the 1 monthly tenor contract declined 0.47% week on week to close at N449.45/$ from N447.36/$ last week.

Cowry Asset management report shows that the 2 months, 3 months, 6 months and 12 months Naira forward contracts followed the same trend by 0.45%, 0.98%, 1.08% and 0.81% in that order to close the week at N452.81/$, N458.75/$, N476.53/$ and N501.04/$ respectively.

Traders noted that the total value of open contracts at the FMDQ FX contract market fell 7.3% to $4.1 billion. In its market report, Afrinvest said this decline was due to the maturity of the OCT 2022 contract.

Excluding this maturity, the market value rose 4.3% week on week mainly supported by a 26.3% uptick to $195.10 million for the NOV 2023 with a contract price of ₦481.79. This includes a 10.9% gain apiece to $387.53 million and $485.15 million for NOV 2022 with a contract price of ₦454.73 and OCT 2023 with a contract price of ₦478.88 instruments respectively.

In the week ahead, Naira is likely to remain pressured across FX segments owing to the FX demand-supply imbalances.

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