Naira crashes at I&E window as forex reserves fall further
The naira fell to 401 against the dollar on Tuesday at the Investors’ and Exporters’ Foreign Exchange Window.
The local currency had dropped to 398.50 against the greenback on Monday from 395.50/$1 on Feb. 3, according to FMDQ Group. It closed at N396.17/$1 last Friday.
The naira, however, remained stable at 480/$1 at the parallel market on Tuesday.
The country’s forex reserves declined to $36.04 on Feb. 5 from $36.19 billion at the start of the month, the latest data from the Central Bank of Nigeria showed.
The reserves has been on a downward trajectory since late last month, falling from a high of $36.52 billion on Jan. 25.
The International Monetary Fund has said this week that Nigerian authorities did not agree with the need for an additional exchange rate adjustment.
“They explained that the major burden of macroeconomic adjustment does not need to be borne by the exchange rate, as current pressures are not related to the exchange rate per se but rather reflective of global developments,” it said in a report on Monday.
According to the IMF, latest estimates suggest an overvaluation of the real effective exchange rate (applied on the current level of the official exchange rate) of 18½ percent, with the external position assessed as substantially weaker than what is consistent with fundamentals and desirable policy settings.
A renowned economist, Mr Bismarck Rewane, said last week that the Nigerian currency was overvalued by 28.79 percent, with further devaluation expected to happen this year.
The naira has been fluctuating in recent months, plunging on Nov. 30 to 500 per dollar at the parallel market, its lowest level in more than three years. It, however, rose to 470/$1 on Jan. 7, 2021, but started falling the next day.
The Central Bank of Nigeria has kept the official exchange rate at N379/$1 since August, when the naira was devalued for the second time. It was first devalued to 360 in March from 306.
Rewane, managing director of Lagos-based Financial Derivatives Company Limited, said the exchange rate pressures would persist at both parallel market and I&E window on increased foreign exchange demand.
