Naira lost 11% as banks issue new update on FX spending

A largely offensive foreign exchange (FX) policy by the Nigeria’s monetary policy authority drained the local currency, the naira, across the foreign exchange market in the year 2022.

At Investors and Exporters foreign exchange market, naira was sold at N461.50 at the close of trading session in 2022, translating to about 11% year on year depreciation from N416 in January, 2022.

In the parallel market, naira was sold at N740 with intermittent adjustment to N745. Though external reserves printed strong at $37 billion, the local currency exchange rate continues to worsen while the apex bank blocked dollar upstream by users.

For Nigerians, dollar payments for goods and services appears to becoming a forbidden economic activities as local banks announced an outright ends to $20 monthly spends. >>Naira, External Reserves Slump amidst Rising FX Demand

In the investors and exporters FX market, Nigerian naira was sold at N416 at the beginning of 2022 amidst the central bank sustained multi-tiered exchange rates that follow foreign currencies rationing in a growth starved densely populated Africa’s largest economy with about $450 billion gross domestic product size.

For foreign money bags seeking to penetrate the local economy, FX policy that limit ability to upstream dollar abroad was a ‘no-no’, by the middle of the year, MSCI index threatened to downgraded Nigeria’s index citing inability to get dollar out of the country.

Apart from the threat to the index, the International Monetary Fund and the World Bank advised the apex bank leadership to adopt market clearing exchange rate to attract foreign investors.

Exchange rate converge has worsened across the regulated and open market. At the year end, gap between dollar spot rate at the investors and exporters window settled at about 70%.

Traders’ notes show that the Nigerian Autonomous Foreign Exchange Fixing (NAFEX) rate traded within the range of N435.0-452.0/$ but closed at N461.50 for United States dollar.

In the forwards market, FX traded within the range of N452.0-472.9. In the 1-month contract, naira depreciated by -0.8%% last week to close at N468.9, and in the 3-month contract, naira depreciated by -0.9% to close at N475.2.

In the retail secondary market intervention sales (SMIS) market, the FX spot rate remained unchanged at N445. With open market rate of N740 to a greenback, gap between the NAFEX and parallel market rate settled at 62.1%.

According to data from FMDQ, NAFEX turnover decreased by -56%% to $155.8 million at the year end. Ahead of Christmas holiday, the NAFEX window recorded an inflow of $398 million.

Of the sum, CBN accounted for 2.8%, foreign portfolios investors accounted for 0.1%, non-bank corporates accounted for 70.9%, exporters accounted for 21.6%, while others category accounted for 4.6%.

In the second half of 2022, naira lost 10%, from exchange rate of N415 that was marinated at the Investors and Exporters FX window as monetary authority slowdown on market interventions.

As a result of its fresh red line crossing, FX has widened and analysts have raised their devaluation frenzy louder, saying there is no indication that the local currency will recover.

Naira is stretched across the foreign exchange market while galloping headline inflation rate continues to weak purchasing power, reducing real value of individual and corporate wallets.

Bank of America recently said the naira is 20% above its fair value in the official foreign exchange market with expectation that by the end of first quarter in 2023, the Central bank would have corrected the overvaluation.