Naira weakens amidst lower oil prices, profit taking




With oil prices unstable in the international market and Dollar liquidity in Nigeria’s forex market coupled with investors booking profits on local debt instruments in response to falling yields, the Naira has faced upside pressure since the start of the third-quarter.

At the Investors and Exporters’ (I&E) window, the Naira has depreciated by 1% to N363.68/$ from N360.74/$ at the end of the second quarter.

As a result of the souring sentiment for equities and profit booking in the fixed income market, inflows into the Investors’ and Exporters’ window reduced by 25 per cent in July to $2 billion from $2.6 billion recorded in January.

The inflow of both Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) also declined by 73 per cent and 41 per cent respectively as at July while the percentage of international-sourced inflows to the window dropped to 45 per cent  in July from 61 per cent in January.

This has fueled a dollar liquidity squeeze (external reserves are down by 1.51 per cent quarter-to-date) that has intensified pressure on the naira exchange rate.

In addition to the capital market pressures on the exchange rate, pressure has been building on the Naira due to faltering oil prices in the global market.

Skepticism about Nigeria’s ability to meet its foreign exchange obligations intensified following the fall in the price of oil in the global market- this is because crude sales account for the bulk of Nigeria’s foreign exchange earnings and government revenues.

At th

Naira weakens amidst lower oil prices, profit taking

Segun Odunewu

With oil prices unstable in the international market and Dollar liquidity in Nigeria’s forex market coupled with investors booking profits on local debt instruments in response to falling yields, the Naira has faced upside pressure since the start of the third-quarter.

At the Investors and Exporters’ (I&E) window, the Naira has depreciated by 1% to N363.68/$ from N360.74/$ at the end of the second quarter.

As a result of the souring sentiment for equities and profit booking in the fixed income market, inflows into the Investors’ and Exporters’ window reduced by 25 per cent in July to $2 billion from $2.6 billion recorded in January.

The inflow of both Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) also declined by 73 per cent and 41 per cent respectively as at July while the percentage of international-sourced inflows to the window dropped to 45 per cent  in July from 61 per cent in January.

This has fueled a dollar liquidity squeeze (external reserves are down by 1.51 per cent quarter-to-date) that has intensified pressure on the naira exchange rate.

In addition to the capital market pressures on the exchange rate, pressure has been building on the Naira due to faltering oil prices in the global market.

Skepticism about Nigeria’s ability to meet its foreign exchange obligations intensified following the fall in the price of oil in the global market- this is because crude sales account for the bulk of Nigeria’s foreign exchange earnings and government revenues.

At the end of Tuesday’s session, Brent- the global benchmark of sweet light crude- closed at $59/bbl, a two per cent discount to the $60/bbl oil price benchmark for the 2019 budget.

e end of Tuesday’s session, Brent- the global benchmark of sweet light crude- closed at $59/bbl, a two per cent discount to the $60/bbl oil price benchmark for the 2019 budget.

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