Increased pressure on the Naira in the Forex Market

Resulting from the rapid need and the output-cut brought about by the Organization of Petroleum Exporting Countries (OPEC), global oil prices have surpassed the budget benchmark of $51 per barrel to reach a high average of $73.07 per barrel. Eventually, this meant stronger external buffers with growth external resources reaching a high value of $47.87 billion in May. This rapid growth has helped to boost the Central Bank of Nigeria (CBN) plans to uphold sterilized interventions making the country‚Äôs currency stay at a consistent value since this year. Back in October, the naira was exchanged at the parallel market at a flat rate of N362 per dollar. Still, certain opinions and influences have risen in excess against the Naira due to the upcoming 2019 elections. This made the Naira depreciate to N363 per dollar as at the 8th of November.

As expected, Forex investors are now at high risk due to these events. More so, they are bothered about how the administrators are to handle MTN Nigeria in the ongoing case. There are fears that the same thing happening to MTN could also happen to other foreign companies doing business in Nigeria. This has raised worries such that hedge funds and investors in portfolio are going out of the country, making external reserves exhaust at a very fast rate.

Since reaching that height in May, external reserves has continued to go downwards that it is now lower than the normal threshold of $42 Billion. The cause of the download flow can also be said to being caused by advanced economies imposing monetary policies, as it has caused major capital outflows from the Country. The Naira is now exchanged at the IEFX window for a high rate of $365 per dollar. The IEFX window is regarded as being more efficient than official rate and there is speculations that the Naira may depreciate more very soon.

In the meantime, the ability of the CBN to uphold the low tendency of external reserves in addition with that of oil prices has given assurance that they are capable of maintaining foreign exchange interventions in the country. Since this November, the Central Bank has been involved with a total sum of $547.16 Million. Comparing this amount to that of the previous month of October, it has gone lower than the $754.15 million generated in the first two weeks by 27.45% and by 63.76% lower the amount generated from Forex interventions in the whole of October.

Reports from inside the Central Bank of Nigeria has made known that they are still obligated to keep up with making the Naira exchange rate stable not minding its effect on external reserves. Because of this, the Central Bank is expected by all to proceed with the intervention pattern they have been making use of. Yet, due to the business activities normally associated with the Xmas season we are about to enter, there is a possibility that the Naira may still depreciate a little.