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The Nigerian naira has reversed some of its recent gains, depreciating by 1.66% week-on-week to close at N1,517.24/$ at the official market. A similar trend was observed at the parallel market, where the naira eased to an average of N1,520/$.
According to Bureau De Change operators, the naira lost as much as N70 to close at N1,570/$ at the end of the week.
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Analysts attribute the depreciation to increased demand for dollars by foreign portfolio investors and local corporates. “The naira depreciated this week due to tight dollar liquidity and increased demand from foreign portfolio investors and local corporates,” said AIICO Capital Limited.
CardinalStone, in its daily market report, noted that “pressure on the naira at the foreign exchange market increased arising from profit-taking actions by foreign portfolio investors and local corporates, offsetting support from CBN’s intervention at the interbank market.”
Experts believe that the Central Bank of Nigeria’s (CBN) continued weekly interventions in the FX market will be crucial in dictating currency movements. “While the short-term outlook suggests a moderate market performance, an improved supply of dollars could provide some relief for the local currency,” said analysts at Cowry Assets Management Limited
The CBN’s foreign reserve, which stood at $38.35 billion as of Thursday, is expected to provide a buffer for the naira.
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Looking ahead, experts predict that the naira will maintain its positive performance across FX segments, supported by the CBN’s continued USD supply to BDCs and DMBs. “In March, we anticipate the naira will maintain its positive performance across FX segments, supported by the CBN’s continued USD supply to BDCs and DMBs, provided there are no adverse market shocks,” said Afrinvest in its Monthly Market Report.
However, experts also highlight some of the challenges threatening the naira’s stability, including a mounting debt burden, sustained decline in foreign reserves, and high inflation rates. These factors threaten to undermine the potential gains of ongoing foreign exchange reforms.
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