The exchange rate for a dollar to naira on the physical black market on Monday was N1, 280/US$ as against N1,260 against the greenback last week.
At the Nigerian Autonomous Foreign Exchange Market (NAFEM), the local currency gained some grounds against the greenback as it closed at N838.95 to the dollar, compared to last Friday’s N890.54/US$1.
The volatility in exchange rate persisted last week, attaining a weekly low of N1089.51/US$1 on Tuesday and a weekly high of N856.57/US$1 on Monday.
Naira records temporary gain despite persisting exchange rate volatility
On the P2P market, an unofficial market actively traded by crypto traders, retail investors, and speculators, the naira traded at about N1272/$ in the early hours of Monday from the weekend’s rate of N1255/$.
Meanwhile, data published by the Central Bank of Nigeria (CBN), shows that Nigeria’s gross official reserves decreased by US$91.6million to USD32.9billion in December 2023.
This decline suggests the country’s gross external reserves fell by approximately US$4.2billion in 2023, indicating an average monthly depletion rate of -USD348million.
Analysts at FBNQuest say the gross official reserves trend has been generally downward since October 2021.
“This is mainly due to the strong demand for foreign exchange by end-users, weak accretion to the reserves from export proceeds (primarily crude oil), and the declining trend in foreign portfolio inflows“, the analysts stated in an advisory note to clients.
The firm noted that total reserves as at end December 2023 covered 7.7 months of merchandise imports per the balance of payments for the 12 months to June 2023 and 5.7 months “when we add imported services.”
However, for a more accurate picture, FBNQuest stated that there should be adjustment in the gross reserve figure for the pipeline of delayed external payments and the encumbered portion of the reserves.
The reserve cover of 7.7 months (5.7 months including services) appears to have improved compared to the 7.1 months of merchandise import cover (5.3 months including services) as of Jun ‘23.
“However, this apparent enhancement is primarily attributed to import constraints resulting from limited access to foreign exchange for importers.
“A significant factor worth highlighting is the -14percent year on year (y/y) decline in total merchandise imports to US$51.6billion for the 12 months ending June 2023 compared with the US$60.0billion for the year earlier period ending June 2022.
Late last year, the CBN began a gradual reduction of the backlog of foreign exchange (fx) forwards.
Roughly USD2billion has been successfully cleared from an estimated outstanding amount of US$7billion.
“We anticipate limited accretion to the external reserves this year due to challenges in raising Nigeria’s crude oil output from about 1.3 million barrels per day (mb/d) toward the 1.78 mbd envisaged in the 2024 budget.
“Regarding pricing, expected OPEC production cuts may be offset by higher non-OPEC oil output, notably the anticipated rise in US production. This is likely to keep oil prices in equilibrium.
“We forecast the gross official reserves at about US$34.0billion by the end of 2024, slightly higher than the US$32.9billion it closed in 2023,” FBNQuest analysts noted.
