The Nigerian Naira suffers chronic decline and is expected to depreciate more next week in the Investors and Exporters (I&E) window, eventhough the central bank of Nigeria injected $540Million . Last week, the naira depreciated for the fourth consecutive week in the I&E window, falling by 87 kobo as the indicative exchange rate for the window rose to N363.44 per dollar at the close of business on Friday from N362.57 per dollar the previous week. Cumulatively, the naira has depreciated by N2.65 against the dollar in the I&E window since the week that ended July 12 when it recorded its last weekly appreciation to N360.79 per dollar. The depreciation of the naira is driven by increased dollar demand by foreign portfolio investors (FPIs) exiting the nation’s treasury bills due to falling yields, as well as falling crude oil price, which dropped below Nigeria’s budget 2019 benchmark of $60 per barrel last week. In addition was the sharp decline in dollar supply into the I&E window by foreign portfolio investors (FPIs), which fell by 28 percent to $780 million in July from $1.09 billion in June.
The naira depreciation was in spite of increased intervention of the CBN in the I&E window in July. Data from FMDQ showed that the apex bank injected $540 million into the I&E window in July, in sharp contrast to June and May when the CBN did not intervene in the window. Meanwhile the CBN last week increased its weekly intervention in the interbank foreign exchange market to $490 million. In addition to the regular weekly injection of $210 million on Tuesday, the apex bank further injected $280.04 million and Chinese Yuan of 28.3 million via the Retail Secondary Market Intervention Sales (SMIS) on Friday. The increased intervention of the CBN triggered a downward trend in the nation’s external reserve, which dropped further by $190 million as at Thursday last week, to $44.657 billion from $44.847 billion, Thursday of the previous week. Consequently, the external reserves which recorded the first monthly decline in July, has fallen by $412 million since the end of June.
The above scenario, according to analysts will persist this week, leading to further depreciation of the naira in the I&E window. According to analysts at Lagos based Cowry Assets Management Company, “In the new week, we expect depreciation of the naira against the dollar across the market segments despite CBN sustained special interventions given the fear of further crash in crude oil price.”
