There is heightened uncertainty in the currency market over the fortunes of the Naira this week, with investment analysts highlighting factors that will trigger further depreciation as well as the impact on Nigerians and the economy.
While noting that the 61 per cent depreciation of the Naira last week has worsened confidence in the national currency and would lead to a further rise in the cost of goods and services as well as an increase in debt service, they warned that risks of further depreciation exist until the Central Bank of Nigeria, CBN curtails growth in money supply, punishes currency manipulators and clears the backlog of mature dollar obligations estimated at $5 billion.
Meanwhile, the nation’s external reserves, a major indicator of future exchange rate of the Naira, rose by 3.6 per cent to $33.35 billion in January, reversing a five-month decline that started in August.
Data from the CBN showed that the external reserves rose to $33.35 billion on January 30th from $32.192 billion in December last year.
This is in sharp contrast to the persistent decline recorded in the external reserves in 2023. The reserves declined all through the months of 2023 except for the very marginal increase in October.
Consequently, the reserve closed the year at $32.192 billion, a 13.2 per cent or $4.89 billion loss from $ 37.082 billion it recorded at end of 2022.
The increase in external reserves which also signifies improvement in foreign exchange inflow during the month may not be unconnected with the rise in the price of Nigeria’s crude oil grade, Bonny Light, to $84.41 per barrel at the end of January from $79.4 per barrel at the end of December as well as the increase in oil production in the second half of the year.
On the other hand, the volume of dollars traded (turnover) in the Nigerian Foreign Exchange Market, NAFEM, fell by 3.2 per cent, month-on-month (MoM) to $2.14 billion in January 2024 from $2.21 billion in December.
Vanguard analysis of weekly transactions in NAFEM as published by FMDQ showed a steady flow and ebb throughout the month of January.