Analysts Anticipate Devaluation despite rise in Naira

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(FILES) This file photo taken on January 28, 2016 shows shows naira banknotes, Nigeria's currency, in Lagos. Nigeria's shortage of foreign currency nightmare goes on and affects now the whole country's economy. / AFP PHOTO / PIUS UTOMI EKPEI

by Abiodun Jimoh

Niaira rises against the United States dollar over the weekend but analysts appear not to be satisfied with a relatively overpriced local currency, thus expecting further devaluation at Investors and Exporters foreign exchange rate window.
Data from the FMDQ Exchange platform showed that Naira traded at N414.30 to a dollar in the Investors and Exporters window, gaining 0.2% week on week against the previous record.
While external reserves position has expanded significantly following an inflow from foreign currency borrowings of $4 billion and about $3.5 billion inflow from special drawing rights, the naira has faced many pressures, crossing N420 briefly at investors and exporters foreign exchange window.
This week, Nigeria’s foreign currency reserves snapped its ten consecutive weeks of accretion as it closed lower by $102.20 million week on week to $41.73 billion, according to Cordros Capital in a macroeconomic note.
In the parallel market, the foreign exchange rate has worsened after the central bank decision to ban weekly dollar supply to bureau de change operators in July. However, low dollar supply has persisted despite growing prices of oil in the global market,
The combined effects of FX strain in Nigeria has been a worsening production cost as Stanbic IBTC Purchasing Manager Index for October hinted that private sector growth was peppered by foreign exchange pressures.
In June 2021 while addressing a meeting, Godwin Emefiele, Governor of the Central Bank told the conference that Nigeria’s spot naira rate was overvalued by up to 10%.
No official devaluation has occurred since the statement except for about 13% devaluation seen at the interbank foreign exchange market to N430 to a dollar.
Some analysts attributed the move to a lower exchange rate at the interbank foreign exchange window to a move to converge the policy authority’s multi-tiered exchange rates.
In the Nigerian Autonomous Foreign Exchange Fixing, the naira has not been stable amidst a noted slowdown in CBN participation at the Investors and Exporters foreign exchange window in recent time.
In a report, analysts at Cordros Capital indicates an expectation that the local currency should be devalued closer to its fair value of N456.67.
Meristem analysts had projected a higher denomination to step the local currency from free-falling amidst a steep inflation condition.
This week, Naira appreciated against the greenback by 0.19% to close at N414.30 a dollar at the Investors and Exporters FX window as external reserves climbed further to $41.73 billion as of Thursday, November 4, 2021