Inflation pressure bites harder as Naira depreciates 0.8% –

Forex ban on BDCs: Naira suffers at parallel market, hits N522/$ on first trading

By Chinwendu Obienyi

With the global economy currently dealing with unprecedented level of inflation rate, the Naira which appreciated by 0.3 per cent to N420/$1 at the Investors’ & Exporters’ window (IEW), depreciated by 0.8 per cent to N620/$1 at the parallel market.

This comes as no surprise as the recent decision of the Central Bank of Nigeria to raise the Monetary Policy Rate (MPR) to 13 per cent by 150 basis points in May 2022, is yet to abate the rising cost of goods and services in the country.

According to data obtained from FMDQ, Nigeria’s external reserves rose 0.56 per cent or $220 million week-on-week (w/w) to $38.8 billion (June 23, 2022) from $38.6 billion recorded in the prior week.

However, across the markets, the Naira diverged against the US dollar. The NAFEX rate at the IEW slightly appreciated by N1.21/$1.00 w/w to close the week at N420.13/$1.00 from N421.33/$1.00 recorded previously.

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Meanwhile, the Naira fell by N5.00/$1.00 w/w to N620.00/$1.00 from N609.00/$1.00 at the parallel market while activity level in the IEW rose by 8.2 per cent w/w to $520.8 million.

Reacting, economic analysts who spoke to Daily Sun, said they do not expect the market to significantly deviate from current trend. According to them, the destructive combination of sub-optimal oil production, poor infrastructure, and fuel subsidies have drained oil revenues that account for roughly 90 per cent of foreign exchange earnings.

Speaking via an email note, Senior Research Analyst at FXTM, Lukman Otunuga, said that lower oil revenues and falling foreign exchange reserves are forcing Nigeria to ration dollars.

Otunuga said, “The negative impacts continue to be reflected across the economy and local currency. But now the dollar shortages have attracted the attention of MSCI Inc. which is considering downgrading the MSCI Nigeria indexes to the status of a standalone market from frontier markets.

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Given the difficulty in repatriating funds from Nigeria, this has placed the MSCI Nigeria Indexes in the crosshairs. Such a negative development may hit sentiment toward the county’s assets at a crucial period where economic growth remains fragile”.

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