Naira Drops Across Markets As Forex Reserves Dwindle

The naira has continued its free fall across the exchange markets as Nigeria’s foreign exchange (forex) remained depressed amidst dwindling crude oil production.

Post-trading data at the weekend showed that the naira during the week depreciated at both the official and parallel markets.

At the official Investors and Exporters (I & E) window of the Central Bank of Nigeria (CBN), the naira depreciated by 29 basis points to N441.67 per dollar. At the parallel market, the naira fell faster by 700 basis points to N750.00 per dollar.

Nigeria’s external reserves had declined by 0.6 per cent to $37.7 billion, according to latest figured tracked at the weekend.

Analysts expected the naira and the nation’s forex reserves to remain under pressure as Nigeria struggles with poor oil production, surging inflation and backlog of unmet forex demand.

Data from Hanke’s Currency Watch List ranked naira as the 11th worst-performing currency against the dollar in the list of 19 worst-performing currencies in the world. Naira also ranked the fourth worst in Africa.

Data from Hanke’s Currency Watch List ranked naira as the 11th worst-performing currency against the dollar in the list of 19 worst-performing currencies in the world. Naira ranked the fourth worst in Africa, ahead of the Ghana Cedi which ranked 13th globally and third in Africa; according to the latest edition of Unity Bank Digest released at the weekend.

The data further revealed that the naira has lost 48.87 per cent of its value against the dollar as at September2, 2022 compared to its value in January 2020.

Read Also: Naira Falls Again to Dollar at N745/US$1

According to the report, the naira’s woe was due to falling external reserves and limited forex supply relative to the demand for forex. This has been worsened by the current fall in oil prices below $90 per barrel amid low oil production levels, which limits the inflow of forex through oil exports.

The report noted that severe currency depreciation is one of the major inflation-stoking factors pointing out that Nigeria’s inflation had spiked to a high of 20.52 per cent in August and could stay elevated in September on the back of currency pressures and soaring energy prices before falling in September.

“Nigeria remains heavily import dependent and is currently facing a dollar crunch. This means that the cost of importing products into the country will rise, triggering further inflationary pressures. Meanwhile, the existence of multiple exchange rates in the country has contributed to the fast slide of the naira and left investors spooked, slowing the inflow of foreign capital into the country. A decline in investment is negative for the growth of the economy,” the report stated.

Analysts have said the widening gap between the official and parallel rates would further discourage independent forex owners from the official market, after the apex bank’s incentive regime failed to woo independent sources to the official market.

Analysts have attributed the currency depreciation and widening gap to the multiple forex rate management of the CBN, describing as unsustainable.

According to analysts, forex liquidity remains squeezed and as such the official exchange rate of the naira may be devalued further.