Naira Depreciates, As Several Factors Support Rise In Dollar Rate

The value of the Naira depreciated further in the official market on Monday, 13 March 2023, as the United States Dollar strengthened in the foreign exchange (forex) market. 

At the close of trading, it costs N461.67/$1 to exchange both currencies in the forex market supported by the Central Bank of Nigeria (CBN). 

The Nigerian currency depreciated by -0.04 per cent, as the value of the Dollar rose by N0.17 kobo in the official window, considering it closed trading at N461.50/$1 on Friday, 10 March 2023. 

It was learnt that the exchange rate rose as high as N462.50 during the trading session. Also, the Dollar rate depreciated as low as N445.96 before settling at N461.67/$1. 

At the end of business hours, FMDQ Exchange reported that investors and exporters traded $77.64 million worth of forex. This is below the $82.56 million traded during the previous session. 

The value of the transaction was down by -5.95 per cent or $4.92 million when the foreign exchange traded on Monday and Friday are compared.

What you need to know

Three international institutions, Fitch Ratings, Andersen and Bank of America have projected that the Naira will come under pressure in 2023. 

Several factors such as shortage of foreign exchange, scarcity of Naira notes, rising global interest rates and limited government external borrowing will work against the Naira in favour of the Dollar. 

According to Andersen, an independent tax and business advisory firm with an office in Nigeria, said: “FX excess demand pressure is expected to continue in 2023 fuelled by varying factors such as elevated global interest rates attracting portfolio investments away from Nigeria; a structurally import-dependent economy; currency speculations if the gap between official and parallel market rates are not closed; etc, which will make the naira to remain pressured in the foreign exchange windows.” 

Also, Fitch in its projection for the Naira, stated: “However, the demonetisation drive is still likely to be disruptive in the near term. Associated cash shortages may hit consumer spending and boost demand for foreign currency, aggravating foreign-exchange shortages.” 

On the part of Bank of America, its Economist for Sub-Saharan Africa, Tatonga Rusike, said: “The economist also disclosed that: “While the naira will come under increasing pressure due to limited government external borrowing, devaluation is unlikely to happen until after the February 2023 presidential elections.”