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NMDPRA Refutes Bank of America’s Naira Projection, Says Naira to Appreciate

NMDPRA has said the Naira would appreciate against its global counterparts in 2023

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Aliko Dangote - Investors King

Following the Bank of America projection that the Nigerian Naira would decline by 20% in the next six to nine months, Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) has said the Naira would appreciate against its global counterparts in 2023.

Explaining the modalities for its position, NMDPRA said most of the challenges impacting the value of the Nigerian Naira are basically demand and supply-related issues. This, the agency explained would be addressed by the completion of Dangote Refinery.

Located in the Lagos Free Trade Zone (LFZ), Dangote Refinery is expected to meet Nigeria’s domestic demand for fuel and also leave enough for exportation.

“The refinery, with 650,000 barrels per-day installed capacity is expected to double the total output of Nigeria’s existing ailing refining infrastructure and meet 100 per cent of the Nigerian requirement of all refined products will pump out fuel any moment soon,” the agency declared.

With Nigeria presently spending about $50 billion on refined petroleum products importation per annum and Dangote Refinery expected to commence operations next year, the Central Bank of Nigeria (CBN) would be able to boost dollar supply substantially and meet demand in 2023.

Investors King had earlier reported that the Bank of America sees an additional 20 percent decline in naira value in 2023. The global lender noted that the dollar will be exchanged for N520/$ within the next six to nine months.

However, NMDPRA argued that Dangote refinery capacity would be enough to ease dollar demand pressure on CBN and increase the apex bank fiscal space.

“Dangote Oil Refinery is a 650,000 barrels per day integrated refinery project under construction in the Lekki Free Trade Zone, Lagos. It is expected to be Africa’s biggest oil refinery and the world’s biggest single-train facility,” the NMDPRA said during the visit,” it said.

Mr. Devakumar Edwin, Group executive director, Strategy, Portfolio Development & Capital Projects, Dangote Industries Limited, on his part said the refinery would deepen Nigeria’s economic productivity and enhance CBN forex intervention.

He said “it can meet 100 per cent of the Nigerian requirement of all liquid products (Gasoline, Diesel, Kerosene and Aviation jet), and also have surplus of each of these products for export.

“The high volume of petrol output from the refinery would transform Nigeria from a petrol import-dependent country to an exporter of refined petroleum products,” he stated adding that the refinery would produce Euro-V quality gasoline, diesel, jet-fuel, kerosene and poly-propylene for local consumption and also have surplus of each of the products for export,” he stressed.

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Naira

Naira Hits Five-Month Low Amid Dollar Demand Surge

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Naira to Dollar Exchange- Investors King Rate - Investors King

Nigeria’s naira extended its losing streak to a fifth consecutive day as it slipped to its weakest level since March despite the Central Bank of Nigeria’s (CBN) interventions.

The naira closed at 1,577.29 per dollar on Monday, down from Friday’s N1,563.8 per dollar on FMDQ.

This decline comes despite the CBN’s efforts to stabilize the currency by injecting $122.7 million through dollar sales into the market.

However, analysts argue that these amounts were insufficient to balance the robust domestic demand for the greenback.

“The CBN has been in the market selling $50 million from time to time, which is not enough,” commented Carlo Morelli, senior portfolio manager at Azimut Investment SA.

Morelli attributes the persistent pressure on the naira to capital outflows and a lack of investor confidence in the currency, despite the central bank’s commendable efforts in tightening monetary policy and reducing naira liquidity.

Central Bank Governor Olayemi Cardoso has aggressively raised interest rates in an attempt to curb inflation and stabilize the naira.

The benchmark borrowing rate now stands at 26.25%, following an increase of 14.75 percentage points since May 2022.

However, the currency has weakened by approximately 70% against the dollar since exchange-rate controls were eased last year.

“Restoring foreign exchange broad confidence is the last step, and the huge volatility in May delayed the return to normalcy,” Morelli added.

“Many foreign investors are still waiting for more evidence of stability before considering Nigeria investable.”

The naira’s decline makes it the second-worst performing currency tracked by Bloomberg in 2024, trailing only the Lebanese pound.

The recent depreciation has been fueled by both seasonal dollar demand and ongoing investor skepticism.

The central bank’s next policy decision, set for July 23, is expected to address these issues. Monday’s data showing annual inflation quickened to 34.2% in June suggests that another rate hike might be on the horizon.

In a bid to bolster the naira, the central bank has increased Nigeria’s foreign exchange reserves to $35 billion as of July 8, the highest level since May 30, 2023.

This boost is attributed to recent loans from the World Bank and the African Export-Import Bank.

Omobola Adu, an analyst at BancTrust & Co. Investment Bank, noted that recent pressure on the naira has also stemmed from corporates and individuals preparing for foreign vacations.

“Boosting the supply of FX into the country remains crucial for the government to alleviate pressure on the naira,” Adu stated.

He suggested that a eurobond or local dollar bond sale later this year, along with increased support from multilateral institutions, could help shore up reserves.

Despite these challenges, Central Bank Governor Cardoso remains optimistic, asserting that the worst of the currency’s volatility is over.

He reiterated this sentiment on Thursday in Lagos, addressing business leaders and highlighting improvements in crude output and capital inflows as positive signs.

Nigeria, Africa’s largest crude producer, relies heavily on oil sales, which account for at least 80% of its export earnings.

The country’s combined crude oil and condensate output rose to 1.5 million barrels per day in June, the highest since February, according to the upstream petroleum regulatory commission.

“While the naira may be undervalued, for the naira to stabilize and perhaps regain ground, large portfolio and capital inflows are needed,” said Samir Gadio, head of Africa strategy at Standard Chartered Plc in London.

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Naira

Naira Plummets to Three-Month Low of N1,530 Per Dollar on Black Market

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The naira has plunged to a three-month low of N1,530 per dollar on the parallel market, also known as the black market, amid renewed pressure on demand for the greenback by end users.

This represents a 0.65 percent or N10 decline from the N1,520 rate quoted last Friday.

According to data from online sources and street traders, this is the weakest level since March 19, 2024, when the naira was quoted at N1,570 per dollar.

“The dollar’s value has risen due to increased demand from travelers and importers. Currently, we purchase dollars at N1,520 and sell them at N1,530,” a street trader stated in Lagos.

On the official Foreign Exchange (FX) market, however, the naira saw a slight gain.

It appreciated by 0.70 percent on Friday, closing at N1,509.67 per dollar compared to N1,520.24 on Thursday, according to data from the FMDQ Securities Exchange Limited.

Despite this appreciation on the official market, the parallel market continues to experience significant volatility.

The dollar supplied by willing buyers and sellers decreased by 32.64 percent, falling to $116.88 million on Friday from $173.51 million recorded on Thursday. This drop in supply further exacerbates the pressure on the naira in the parallel market.

The intraday high on Friday closed at N1,535 compared to N1,550 on Thursday, while the intraday low was quoted at N1,450 on Friday, down from N1,430 on Thursday.

Economic analysts suggest that the disparity between the official and parallel market rates indicates underlying issues in Nigeria’s foreign exchange management and economic policies.

The continuous demand for dollars by travelers and importers highlights the challenges faced by the Central Bank of Nigeria (CBN) in stabilizing the naira.

As the demand for the dollar remains strong, the naira’s depreciation could have far-reaching effects on the economy, including increased inflation and higher costs of imported goods.

The CBN may need to implement additional measures to address the ongoing demand and supply

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Naira

Nigeria’s Foreign-Exchange Woes Intensify with Prolonged Naira Decline

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Naira to Dollar Exchange- Investors King Rate - Investors King

The Nigerian naira continues its downward spiral, making its ninth consecutive day of depreciation against the US dollar and the worst-performing currency in the first half of 2024.

The naira weakened by 0.2% to 1,510 per dollar by the close on Thursday, according to FMDQ.

This persistent decline represents the longest losing streak since July 2017, resulting in a year-to-date devaluation of 40%.

The naira’s performance stands out as the worst among global currencies tracked by Bloomberg, aside from Lebanon’s pound, which is undergoing severe economic turmoil and dollarization.

Analysts attribute the naira’s plunge to a combination of steep devaluation, insufficient dollar liquidity, and market volatility, which have hampered efforts to stabilize the currency.

“While the naira is undervalued and has seen significant adjustment, the supply of dollars needs to improve for the currency to be supported,” said Samir Gadio, head of Africa strategy at Standard Chartered Bank Plc in London. “Portfolio inflows have yet to pick up, even amid still-attractive local rates.”

Nigeria has been grappling with chronic foreign-exchange shortages and instability, largely due to reduced crude oil production and a lack of economic diversification.

The local unit has lost approximately 70% of its value against the dollar since June 2023, following policy changes introduced by President Bola Tinubu’s administration aimed at attracting foreign inflows to revive the economy.

The currency experienced heightened volatility between mid-April and May, driven by the imbalance between demand and supply for the greenback.

However, this volatility moderated in June with an improvement in dollar inflows.

Central Bank Governor Olayemi Cardoso recently expressed optimism about the future stability of the naira.

“The currency’s volatility may be a thing of the past,” Cardoso stated, highlighting efforts to promote investor confidence.

Since assuming office in September, Cardoso has increased interest rates by 750 basis points to 26.25%, cleared a foreign-exchange backlog, and negotiated multilateral dollar inflows to support the naira.

Despite these measures, the naira’s decline underscores the challenges faced by Nigeria’s economy. The currency’s depreciation has been accompanied by inflationary pressures, complicating monetary policy efforts and economic planning.

Besides the naira, other African currencies such as Egypt’s pound and Ghana’s cedi have also been among the world’s worst performers in the first half of 2024.

“Adjustment and rebalancing in 2024 after years of a heavily managed and misaligned currency regime account for the weakening of these currencies,” Gadio noted. For the naira, “what will matter going forward is whether it can stabilize on improving foreign-exchange inflows and perhaps see some appreciation.”

The ongoing decline of the naira highlights the urgent need for comprehensive economic reforms and effective foreign-exchange management to restore confidence in the currency and ensure sustainable economic growth. As Nigeria navigates these challenges, the path to stabilization remains fraught with uncertainty.

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