Analysts Estimate N500 as FX Rate for Investors, Exporters in 2023

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Analysts Estimate N500 as FX Rate for Investors, Exporters in 2023
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Analysts Estimate N500 as FX Rate for Investors, Exporters in 2023

The Nigerian naira is seen facing strong pressures in the foreign exchange (FX) market in 2023 as analysts projected that the local currency will fall to N500 per United States dollar at the Investors and Exporters window.

Naira was sold at N461.17 at the investors’ window, appreciating by about 0.2% from N461.90. Last year, the naira lost about 11% at the window following a slowdown in the Central Bank of Nigeria’s (CBN) intervention in the FX market despite higher demand levels.

“We project naira to weaken to N500 per dollar in 2023”, said CardinalStone Partner in its latest macroeconomic outlook for the year. 

The investment firm stated that in 2022, average monthly net flows through the CBN settled at a negative $81.0 million compared with +$321.9 million as a significant dip in crude oil production constrained the accretive movement of higher crude oil prices.

“Adding an extra layer of pressure on the market, foreign inflows were tepid in the review period on global risk-off sentiments, FX repatriation concerns and the absence of market reflective exchange rate”, the multi-asset investment banking firm stated.

It said FX demand was exacerbated by pre-election spending, increasing Japa syndrome, and heightened currency speculation. This resulted in a decline in Nigeria’s gross foreign reserves, down $3.4 billion to $37.1 billion as of December 2022.

The external reserve balance has been on a free fall, declining to USD37.09 billion in December 2022 (from USD40.52bn as at the start of the year) as the high petroleum subsidy bill and low accretion from non-oil sources have continued to deplete the FX reserves.

The apex bank’s interventions in the interbank foreign exchange market aimed at enhancing supply also pull the balance further downward.

Analysts stated that the limited FX inflows also curtailed the magnitude of foreign currencies supply, as average CBN monthly sales across the FX strata currently stand at $1.4 billion, lower than the 3-year average of about $2.0 billion.

This, it said, resulted in widened disequilibrium in demand and supply which drove the parallel market premium to an all-time high in 2022.  The naira has depreciated by an average of 4-6% over the last 5 years, Cardinalstone said.

Supporting the devaluation tantrum, an investment firm, Meristem Securities, said in a note that non-deliverable Forwards at the Naira settled over-the-counter FX futures market as of December 30th, 2022, reveals that contracts maturing in one year closed at N529.55.

“In our view, this reflects investors’ pessimism about the direction of the Naira’s value against the greenback”, Meristem maintained in its economic outlook note. >>>Naira Steadies as Banks Issue Update on FX Purchase

“We expect this trend to extend into 2023. In line with the FMDQ platform 1-year forward rate, the official rate could weaken to N500 by 2023”, the firm said in its outlook.

It added that upside risks to its FX outlook include the potential operationalisation of Dangote Refinery and a higher-than-expected-resurgence in crude oil production. Both factors could lead to a reduction in parallel market premiums.

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