The naira depreciated against the dollar on Monday after gaining 26.24 percent last week at the parallel market.
The local currency lost 8.24 of its value after trading as the dollar was quoted at an average of N768.33/$ as against N705/$ quoted on Friday at the black market.
Traders said the naira depreciation was as a result of dollar shortage amid rising demand. In Lagos, the dollar traded at between N750 and N770 per dollar, compared to between N700 and N710 traded on Friday at the black market.
In Abuja and Kano, the naira traded at 760-775 per dollar as against 700-710 last week.
“Low inflows of foreign investments into the economy in the face of a challenging business environment will trigger further depreciation in the exchange rate due to pressure on the local currency and raises concerns for the central bank,” analysts at Cowry Asset Management Limited said.
Nigeria’s gross external reserves, which give the Central Bank of Nigeria (CBN) the firepower to defend the naira, lost 8.07 per cent or $3.27 billion in over 10 months to settle at $37.25 billion at the start of November from $40.52 billion at the beginning of the year.
The decline, according to the analysts, can be attributed to the reduced inflow of petrodollars into Nigeria’s economy despite the rally in crude oil prices due to the upbeat in oil demand since the Russian invasion of Ukraine in February 2022.
“Despite several initiatives by the Central Bank of Nigeria such as the RT200 programme, the increase in interest rates, clamping down on Bureau De Change, and FX repatriation policies, the Naira vis-à-vis the Dollar keeps depreciating,” analysts at FSDH said in a new report.
The report said the recent policy on issuance of new naira notes has also intensified the currency’s depreciation. While the underlying problem with Nigeria’s exchange rate is limited FX inflows, “we believe that policies by the apex are important tools that influence the movement of the naira.”
The CBN recently announced plans to introduce new banknotes to replace the current N200, N500 and N1,000 notes with effect from December 15, 2022.
At the Investors and Exporters (I&E) forex window, the naira appreciated by 0.08 percent as the dollar was quoted at N445.75 on Friday as against the last close of N446.10 on Thursday, data from the FMDQ indicated.
The naira has fallen by over 5 per cent this year to N446.10/USD as of November 10, 2022, from N422.67/USD at the start of the year at the I&E window. In the same vein, Nigeria’s gross official reserves declined by around $866 million to $37.37 billion in October.
Over the years, the CBN has always maintained a culture of intervening in the various foreign exchange markets such as the I&E, and the Secondary Market Intervention Sales windows respectively, following the difficulties experienced in those markets with FX supply.