Naira Reverses Trend over Tight Supply Side 

The Nigerian naira reverses uptrend against the United States dollar across the foreign exchange (FX) market. Higher demand for foreign currencies spooked the depreciation of the local currency amidst foreign investors’ apathy in the economy.

Analysts are expressing worry that the exchange rate will worsen in 2023 following an unconfirmed plan that the incoming administration will dump the Central Bank of Nigeria’s governor, Godwin Emefiele.

Mr. Emefiele has been criticized for the role he played as CBN chief ahead of the presidential election of 2023 which resulted in a cash crisis. In a move to redesign the local currency, and drive a cashless economy, there were, perhaps, some unintended consequences.

Naira scarcity, to a large extent, affected the Nigerian economy, and the citizen which left indelible marks on individuals and corporates.

Emefiele had sought to contest presidential election while holding sway as monetary authority chief, which some analysts and public observers saw as a conflict of interest.

Emefiele fought through with the executive backup not to be removed as apex bank chief, thereafter setting an unachievable limit for the implementation of the naira redesign policy.

The foreign exchange market reaction has been moderate. Though, there is an indication that the stance to support the naira has resulted in a large decline in external reserves.

Nigeria’s foreign reserve declined to $35 billion following sustained US dollar outflow for supporting import bills and other payments. To keep the buffer strong, the CBN asked local banks to reduce FX allowances to business and personal travellers by half.

Deposit money banks also asked requestors to give them ample time for processing their demand for foreign currency. Surprisingly, FX rate in the parallel market has not priced in the expected increase in demand.

At the investors’ and exporters’ foreign exchange window, the Naira lost the previous day’s gain of ₦0.67 to close at ₦463.00 per United States dollar. Meanwhile, parallel market players priced rates at ₦745, from N740 reported the previous day.

The apex bank has maintained its foreign exchange auction to support the supply-side equation. Despite this, FX scarcity has continued to bite. The fact that foreign investment inflow has reduced remains a pressure cooker for the supply side.

Unfortunately, FX receipts from crude oil sales remained unimpressive due to a lack of capacity to meet the Organisation of Petroleum Exporting Countries’ 1.8 million barrels per day of crude supply.

Market data shows that Oil prices shed about 6% amid US debt default fears. Brent and Bonny’s light market price declined to $75 per barrel on Wednesday.