Naira Exchange Rates Heated Up Amidst Polished Projection

The Nigerian naira plunged deeper in the ongoing exchange rate mess as shortage of foreign currency crisis extends.

Most of the analysts’ projections on exchange rate outlook appears bullish with claim that the naira is relatively overvalued – but not grossly as the Apex Bank claimed.

The naira has lost N53 in two trading session to settle at N1,653 in Nigerian autonomous foreign exchange market this week, suggesting the market may be heated up without FX auction.

The market anticipates that the Central Bank of Nigeria (CBN) will sell US dollar to authorised dealers banks to reduce FX liquidity challenges in the official window.

Analysts said the naira exchange rates have gotten to a level that attract the attention of the Central Bank. 

FX spot data from the FMDQ platform showed that the Naira depreciated by 3.11%, closing at ₦1,653.02 per US dollar at the official market on Tuesday.

At the same time, the Naira fell in the parallel market to close at ₦1,725 to the US dollar as FX demand for invisible foreign payments continue to outpace FX liquidity in the alternative markets.

In a note, FSDH observed that there has been an observable improvement in the sources of Forex inflows over the past quarters, yet FX pressures remain.

Analysts noted that the economy recorded a trade surplus of US$8.9 billion in H1 2024, a 45.2% increase compared to US$6.1 billion in H2 2023, adding the high-interest-rate environment has boosted portfolio investment inflows into Nigeria.

As a result, Nigeria’s external reserves have been rising, although this has come at the expense of a depreciating Naira. The CBN’s current focus on reserve accretion is aimed at boosting confidence in the FX market, but this posture is likely to shift in Q4 2024, FSDH said.

“Looking ahead to Q4 2024, we expect the exchange rate to close the year around N1,560/US$. With the festive season approaching and added pressure in the FX market, we anticipate an increase in Forex inflows, driven by hikes in policy rates and increased FX interventions by the CBN, aimed at maintaining a stable exchange rate”, the investment firm said.

Despite unsettled issues with the Nigerian authorities, analysts stay positive on naira for crude oil sales to Dangote Refinery. “The Naira for Crude Initiative, which kicks off on October 1st, 2024, is expected to further mitigate Forex risks”, analysts as they maintain a positive outlook for the Naira in Q4 2024. #Naira Exchange Rates Heated Up Amidst Polished Projection

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