Naira Worsens as FX Rates Cross the Rubicon
Faced with damaging demand for the United States dollar among other primary currencies, the Nigerian Naira worsens across foreign exchange (FX) markets on Monday amidst an uprising headline inflation rate that spells doom for the purchasing power.
Due to pre-election demand for the dollar, there is an indication that the naira is facing heavy pressures in the currencies market amidst Nigeria’s hot inflation condition and lower foreign currency accretion into FX reserves.
Some analysts told MarketForces Africa that the monetary authority is merely postponing the inevitable, nothing that naira has remained overvalued amidst rising import bills.
The local currency crosses the Rubicon, traders at N421.50 at the Investors and Exporters foreign exchange market. FX rates had printed at N419 on Friday, according to data from the FMDQ Exchange platform.
Analysts maintained a stance the naira will be devalued due to its weak market position despite a relatively strong external reserve of about $40 billion.
“CBN appears confused about how to manage the local currency, stabilise price level and drive economic growth”, MarketForces Africa gathered from investment banking experts who prefer not to be mentioned.
In the parallel market, the exchange rate crossed N600 to a United States dollar amidst a slowdown in dollar inflow into the nation’s external reserves.
Market data put the open indicative rate at N417.30 to the dollar on Monday with an exchange rate of N444.00 to the dollar as the highest rate recorded within the day’s trading before it settled at N421.50.
The Naira sold for as low as 410 to the dollar within the day’s trading. A total of 70.68 million dollars was traded in foreign exchange at the official Investors and Exporters window.
Ahead of the monetary policy committee of the Central Bank of Nigeria, the headline inflation rate accelerated to 16.38% in April, according to the National Bureau of Statistics.
Coronation Research said in a market noted that the CBN’s in-house estimates suggest that inflation is expected to remain considerably high in the short term, due to the persistence of supply-chain bottlenecks that have been exacerbated as a result of the Russia-Ukraine crisis.
Prior to the Russia-Ukraine crisis, the MPC expressed optimism around a sustainable decline in inflation due to the positive impact of a good harvest on price levels. However, rising inflation is expected given upticks recorded in global commodity prices and a shortage of supply of petroleum products, analysts said.
The NBS tracks headline inflation by state, with Bauchi recording the highest at 18.93% year on year and Sokoto recording the lowest at 14.66% in April 2022. #Naira Worsens as FX Rates Cross the Rubicon