Nigeria’s currency, the Naira, on Monday strengthened against the dollar, gaining 0.54 per cent as demand for the greenback slowed at the parallel market, also called black market.
During the intraday trading on Monday, naira was trading at the rate of N746 per dollar, higher than N750/$ traded last week. “We are not seeing much demand like before,” one trader told BusinessDay.
“The demand for the dollar in the foreign exchange (FX) market is now abating as Nigerians reel from the effects of the currency crunch experienced as a result of the Naira redesign policy of the CBN since October 2022,” analysts at Cowry Asset Management Limited said in a report.
On March 13, 2023, the Central Bank of Nigeria (CBN) finally bowed to the Supreme Court order, saying that the old banknotes remain legal tender until December 31, 2023.
In another development, FX scarcity continued across the board following the signal that Nigerian deposit money banks are set to cut personal travel allowance (PTA) and Business Travel Allowance (BTA) by 50 percent as the dollar crunch persists.
Last week, the Naira edged the United States dollar as it appreciated by N1.00 or 0.13 per cent, week-on-week to close at N751/$ from 752/USD in the previous week even as dollar demand took a calm and was supported by the Naira scarcity.
At the Investors and Exporters (I&E) forex market, Naira appreciated by 0.04 per cent as the dollar was quoted at N461.83 on Friday, as against the last close of N462.00 on Thursday. Most currency dealers who participated at the FX auction on Friday maintained bids between N460.00 (low) and N462.24 (high) per dollar.
On a weekly basis at the I&E forex window, the naira depreciated slightly by 0.07 percent or N0.13 week on week to close at N461.83/$ as against the N461.50/$ in the prior week amid the growing FX demand pressure on the naira following the announcement on the use of the old banknotes, the Cowry Asset report said.
The local currency lost 3.8 percent of its value against the dollar in one month, falling from N737/$ at the beginning of the year to close at N755/$ in February 2023.
This was fuelled by heightened uncertainty as naira cash crunch bites hard, according to Bismarck Rewane, managing director/chief executive officer of Financial Derivatives Company Limited in a report.
According to Rewane, Nigeria’s sources of foreign exchange remain weak due to sub-optimal oil production induced by oil theft, capital flow reversal owing to global monetary tightening and exchange rate premium at the parallel market.
Official Naira is expected to fall to N500 per dollar as Nigeria’s external reserves, which stood at $37.21 billion as of January 17, 2023, is projected to decline to $34.9 billion at the end of 2023, according to the Nigerian Economic Summit Group (NESG).
The decline in the official foreign exchange reserves will be driven by the CBN’s intervention in the forex market and shortage in FX inflow at the end of 2023.
In 2022, the country’s external reserves declined by 8.2 percent to US$37.1 billion from US$40.5 billion at the start of the year.
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