AS DEALERS BID AT 900/$, FX PRESSURE INCREASES

Nigeria is under increasing pressure due to some dealers' quotes of a bid price of N900 per dollar.

By 2027, according to the Economist Intelligence Unit (EIU), the naira will exceed the $1,000 threshold.

According to a recent EIU report, it predicted to be N815 to $1 in 2024 before falling to N1,018 to $1 by the end of 2027, with a margin of 10-15% against the black market over that time.

On July 14, 2023, the naira crossed the 800/$ milestone at the Investors' and Exporters' (I&E) forex window, Nigeria's official FX market. As of Monday, the dollar was trading around N870 on the black market.

The interested buyers and sellers-maintained bids at the FX auction on Friday that reached N799.50/$, which was higher than the N869/$ bid on Thursday and the N845/$1 offered on Wednesday.

Additionally, lesser bids of N465/$ were made at the market auction, which were higher than the N730/$ bid that was made at the I&E window on Thursday and Wednesday.

On July 25, a tier one bank client made a bid at N800/$, but it was turned down on July 27.

The customer's bank recommended him to bid at N900/$ on Monday. The client said, “These people are driving up the dollar.”

The capacity to stabilize the currency rate would be challenging until there is enough supply to meet FX demand, and the CBN may be forced meager it reserves to intervene to stabilize the market, according to Yemi Kale, partner and chief economist at KPMG Nigeria.

Speculators, who are keeping an eye on the supply and have seen it will be challenging to maintain rates stability and demand.

He asserts that supply must come from oil sales as well as increasingly from independent sources such foreign direct investment, foreign portfolio investment, domestic remittances, and export-oriented businesses.

“Unfortunately, confidence is low, and as a result, both international and most domestic investors choose to hold assets denominated in dollars to protect themselves against inflation and asset devaluation. All of this contributes to a lack of supply and increased demand. This will continue for the time being until confidence and a continuous influx are noticed,” Kale said.

Data from the Central Bank of Nigeria (CBN) published by FBN Quest show that FX inflow into the Nigerian economy fell by 3% quarter over quarter and 7% year over year to $17.2 billion in the first quarter of 2023.

The amount was made up inflow of $10.0 billion, which was down 12% q/q, and CBN-facilitated FX inflow of $7.2 billion, which was up +15% q/q.

The FX inflow in Q1 2023 was the lowest quarterly inflow since Q1 2017, except Q3 2022 when it reached a low of $16.9 billion.

The decline in FX inflow since the first quarter of 2020 is mostly related to structural problems, such as the inadequate addition of proceeds from crude oil sales to gross official reserves.

Furthermore, until recently, the monetary authorities' stringent FX policies restricted the free movement of FX out of the nation and discouraged foreign portfolio investors from bringing in more money, according to analysts at FBN Quest.