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By Chinwendu Obienyi
Owing to the rising demand for FX, inflation and decrease in FX turnover at the Nigerian Foreign Exchange Market, the value of the naira, closed the month of April in the negative territory by 5.8 per cent to N1,390.96/$1.
The local currency had gained 12 per cent in March on the back of efforts from the Central Bank of Nigeria (CBN) which had rolled a number of policies including its intervention in sales of FX to the banks as well as the Bureau De Change (BDC) operators.
However, as the naira sustained its ascent in the market, the nation’s external reserves dwindled with reports surfacing that it had decreased by over $2 billion, its lowest level in two years. Analysts insists that the apex bank was defending the naira using the reserves but the CBN Governor, Olayemi Cardoso, maintained that the decline in reserves was not due to defense of the naira but was in line with obligations that had fallen due.
But this did not stop the local currency from registering a loss in the month under review, signifying the 8th consecutive depreciation since the naira last appreciated to as high as N1,072/$1, last week following initial enthusiasm over the apex bank’s forex policies.
According to data from FMDQ, the exchange rate gained marginally on Tuesday April 30th, closing at N1,390.96/$1 compared to N1,419/$1 recorded on Monday, April 27th. Similarly, naira closed at N1,380-N1,400/$1 at the parallel market.
Furthermore, forex turnover on Tuesday was significantly lower at $225.36 million, a sharp fall from the $309 million recorded last Friday.
For the month of April, total forex turnover in the official market was reported at $3.94 billion, a decrease from the $5 billion recorded in March. This suggests that the official market has seen a substantial reduction in forex activity. The external reserves have continued their slow upward trend, now standing at $32.13 billion, marginally higher than the $32.109 billion reported last week.
Analysts at Cordros Research, noted that despite a series of interventions from the CBN, pressures in the FX market have continued to bite harder. They attributed this to the exit of foreign portfolio investors who have returned to the stock market.
They said, “We highlight that the pressures in the FX market remained despite CBN’s interventions due to the sustained exit of FPIs from the domestic capital market, given the lingering external concerns such as the heightened geopolitical tension. We note a relaxation in CBN’s monetary tightening, as yields on naira-denominated assets appear to have plateaued. We anticipate continued pressure on the naira, given CBN’s constrained FX reserves and limited FPI inflows.”
