Naira Depreciates As Analysts Predict FX Rates Will Worsen

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Closed at N426.13 on Friday having persistently lost its shine, analysts are seeing a bleak future for the Nigerian local currency in 2022 despite a higher external reserve position standing at about $40 billion. With sustained pressures across the foreign exchange markets, Naira to United States dollar rate has been predicted to hit N440 in the investors and exporters FX window, and N650 in the parallel market in 2022. Foreign exchange rates are expected to worsen as a result of the dearth of foreign currency inflows amidst pre-election year uncertainties. The backlog of dollars held by the Central Bank of Nigeria (CBN), a resultant effect of capital control measures to stem the naira from falling has raised foreign investors’ risks. Recently, the MSCI Index told investors about a plan to downgrade Nigerian indexes, citing an inability to get the dollar out of Africa’s largest economy. Unfortunately, the market is doing a self-repricing as the exchange rate at investors’ and exporters’ foreign exchange window tumbled to N426.13 on Friday – a recovery from a peak of N430. In the current year, the naira has seen worst movements across the foreign exchange markets amidst constraints in inflows.  In the parallel market, the exchange rate worsened to N616, according to Channel checks on Friday. At a webinar organised by Cowry Asset, the convener said Nigeria’s official exchange rate was expected to trade between the N415-N440 bands in 2022, adding that the expectation has been largely affirmed. It said traders are now predicting a N650/$1 parallel market exchange rate in the second half of 2022 and noted that dollar supply has been at record lows due to Central Bank’s constrained capacity. The uncertainty surrounding the exchange rate will worsen in the face of less impressive net inflows into foreign reserves, according to Johnson Chukwu, Managing Director at Cowry Asset Limited. “The revenue outlook is subject to uncertainties. With oil revenues not expected to rise. Inefficiencies that dominate the oil industry could put even more strain on the government’s ability to pay its debts”, The firm told the audience that the upside for the current account will likely be undermined by underperforming crude production due to theft and vandalism. Despite higher global oil prices, Nigeria has failed to leverage on the boom period to drive foreign receipts. Elsewhere, inflows to the Investors and Exporters Window (IEW) improved as the CBN’s non-oil export proceeds repatriation rebate scheme appears to be bearing fruit, Cordros Capital said in a report. Citing data obtained from FMDQ, the investment firm said total inflows to the IEW rose by 62.0% to $1.84 billion in June from $1.14 billion in May 2022. Analysts said this was its highest level since December 2021 when inflows hit $2.42 billion, albeit still significantly below Q1-2020 monthly average of $3.68 billion. The improvement was primarily due to a 70.3% month-on-month increase in inflows from local players, accounting for 88.4% of total inflows, according to the report.  “We highlight that inflows from exporters – 193.7% month on month to $1.02 billion- rose to their highest level since the CBN created the IEW, reflecting the impact of the CBN’s rebate scheme to attract non-oil exports. Analysts also highlight that inflows from foreign investors which printed at $213.60 million from $181.10 million May remain tepid relative to the pre-pandemic level average of $1.28 billion in Q1-2020, reflective of FX liquidity challenges and an overvalued currency. While analysts said they acknowledge the recent liquidity influx at the IEW, they expect inflows to remain below pre-pandemic levels over the short-to-medium term. Overall, analysts said they expect the local currency to remain pressured in the near term. According to the latest data obtained from the Central Bank of Nigeria’s website, Nigeria’s gross external reserves is on positive accretion back to USD40 billion after hitting more than six months low to around $38 billion since the start of the year. #Naira Depreciates as Analysts Predict FX Rates will WorsenClosed at N426.13 on Friday having persistently lost its shine, analysts are seeing a bleak future for the Nigerian local currency in 2022 despite a higher external reserve position standing at about $40 billion.

With sustained pressures across the foreign exchange markets, Naira to United States dollar rate has been predicted to hit N440 in the investors and exporters FX window, and N650 in the parallel market in 2022.

Foreign exchange rates are expected to worsen as a result of the dearth of foreign currency inflows amidst pre-election year uncertainties.

The backlog of dollars held by the Central Bank of Nigeria (CBN), a resultant effect of capital control measures to stem the naira from falling has raised foreign investors’ risks. Recently, the MSCI Index told investors about a plan to downgrade Nigerian indexes, citing an inability to get the dollar out of Africa’s largest economy.

Unfortunately, the market is doing a self-repricing as the exchange rate at investors’ and exporters’ foreign exchange window tumbled to N426.13 on Friday – recovery from a peak of N430.

In the current year, the naira has seen the worst movements across the foreign exchange markets amidst constraints in inflows.  In the parallel market, the exchange rate worsened to N616, according to Channel checks on Friday.

At a webinar organized by Cowry Asset, the convener said Nigeria’s official exchange rate was expected to trade between the N415-N440 bands in 2022, adding that the expectation has been largely affirmed.

It said traders are now predicting an N650/$1 parallel market exchange rate in the second half of 2022 and noted that dollar supply has been at record lows due to Central Bank’s constrained capacity.

The uncertainty surrounding the exchange rate will worsen in the face of less impressive net inflows into foreign reserves, according to Johnson Chukwu, Managing Director at Cowry Asset Limited.

“The revenue outlook is subject to uncertainties. With oil revenues not expected to rise. Inefficiencies that dominate the oil industry could put even more strain on the government’s ability to pay its debts”,

The firm told the audience that the upside for the current account will likely be undermined by underperforming crude production due to theft and vandalism. Despite higher global oil prices, Nigeria has failed to leverage the boom period to drive foreign receipts.

Elsewhere, inflows to the Investors and Exporters Window (IEW) improved as the CBN’s non-oil export proceeds repatriation rebate scheme appears to be bearing fruit, Cordros Capital said in a report.

Citing data obtained from FMDQ, the investment firm said total inflows to the IEW rose by 62.0% to $1.84 billion in June from $1.14 billion in May 2022. Analysts said this was its highest level since December 2021 when inflows hit $2.42 billion, albeit still significantly below the Q1-2020 monthly average of $3.68 billion.

The improvement was primarily due to a 70.3% month-on-month increase in inflows from local players, accounting for 88.4% of total inflows, according to the report.

“We highlight that inflows from exporters – 193.7% month on month to $1.02 billion- rose to their highest level since the CBN created the IEW, reflecting the impact of the CBN’s rebate scheme to attract non-oil exports.

Analysts also highlight that inflows from foreign investors which printed at $213.60 million from $181.10 million May remain tepid relative to the pre-pandemic level average of $1.28 billion in Q1-2020, reflective of FX liquidity challenges and an overvalued currency.

While analysts said they acknowledge the recent liquidity influx at the IEW, they expect inflows to remain below pre-pandemic levels over the short-to-medium term. Overall, analysts said they expect the local currency to remain pressured in the near term.

According to the latest data obtained from the Central Bank of Nigeria’s website, Nigeria’s gross external reserves are on positive accretion back to USD40 billion after hitting more than six months low of around $38 billion since the start of the year. #Naira Depreciates as Analysts Predict FX Rates will Worsen

 


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