Naira slumps at parallel market as Economic Intelligence forecasts it’ill end 2023 at N810/$

This week, the Naira lost 15.79 percent of its value on the parallel market, closing at N1,100/$.

This was a 15.79 percent drop from the N950/$ it closed trading at last Friday. The naira strengthened against the dollar last week when word came that the Central Bank of Nigeria had begun to resolve its foreign exchange backlogs.

After trading for N1,170 earlier in the week, the naira gained N220 to conclude the week at N950/$. However, the naira has fallen sharply versus the dollar in both the parallel and official trading exchanges this week.

A currency merchant identified simply as Awolu stated, “It is N1,100 if you want to buy.” If you wish to sell it, the price is N1,090.” Another trader, Kadir, adding, “It is N1050 if you want to sell.” If you wish to buy, it costs N1,100.”

According to Aminu Gwadabe, President of the Association of Bureaux De Change Operators of Nigeria, the naira was dropping sharply as a result of speculators’ actions.

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He earlier said , “Speculators are always looking at elements of sustainability. Once they sense that it (the injection) is not continuous, they begin to react. They begin to react. It is the reaction of the market we are witnessing. Also, there is resistance. There are people that bought at a higher price that this does not favour. People are not willing to take further losses.”

However, the naira closed the week strong on the official Investor & Exporter forex window, appreciating by 3.57 percent to close the week at N780.14/$ after opening at N809.02 to the dollar on Monday. Also, the naira appreciated by 21.73 on Friday to N780.14/$ after falling to N996.75/$ on Thursday according to data from the FMDQ OTC Securities Exchange.

Meanwhile, the naira is expected to close 2023 at N810/$ on the official market, Economist Intelligence has disclosed. In a country report released in November, the EIU stated that after floating the naira in June, the CBN has since reverted to guiding the exchange rate by limiting access to foreign-exchange sales for banks and other dealers that quote hard currency outside a preferred rate.

It highlighted that this unsupportive monetary policy would continue to put the naira under pressure. Commenting on the CBN’s attempt to clear its backlog, it said, “The CBN lacks the firepower to adequately supply the market or clear a backlog of foreign exchange orders, valued at over $6bn, which will keep foreign investors unnerved.

“Official foreign reserves are reported at US$33bn, but up to one-third of the assets are encumbered, tied up in derivative contracts or loans. In the short to medium term, the official exchange rate will continue to be propped up by access restrictions, implying long lead times at the NFEM.”

It further declared that the naira would end 2024 at N822.9/$, 2025 at N1,142.5/$, and 2028 at N1,262.1/$. It stated that it does not expect lasting commitment to a market-led naira, as the apex lacks experience of conducting monetary policy under a float.

It added that high inflation and a continued spread with the parallel market will leave the exchange-rate regime unstable and result in periodic devaluations.

The research and analysis division of the Economist Group also highlighted that the decision of the government to scrap import controls on 43 imported items — while being positive for a market-led naira —will generate added demand in the formal market against limited supply.

It argued, “However, other factors undermining the naira, such as deeply negative short-term real interest rates, require an orthodox monetary policy that the authorities have not demonstrated enough appetite for. We therefore do not expect a currency float to succeed over 2024-28, although it seems likely that the fuel subsidy will end when the Dangote refinery is able to replace imports, from late 2024 onwards.”

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