Naira stabilizes at black market as CBN continues its intervention in forex market

Forex turnover dropped by 68.5% as Nigeria’s exchange rate at the NAFEX window appreciated against the dollar to close at N385.67/$1 during intra-day trading on Monday, November 9.

Also, the naira depreciated against the dollar, closing at N465/$1 at the parallel market on Monday, November 9, 2020, as dollar shortage persists

Parallel market: According to information from Abokifx – a prominent FX tracking website, at the black market where forex is traded unofficially, the Naira depreciated against the dollar to close at N465/$1 on Monday.

This represents a N1 drop when compared to the N464/$1 that it exchanged for on Friday, November 6

  • The local currency had strengthened by about 7.8% within one week in September at the black market, as the CBN introduced some measures targeted at exporters and importers.
  • This was so as to try to boost the supply of dollars in the foreign exchange market, and reduce the high demand for forex by traders.
  • The CBN has sold over $500 million to BDCs since they resumed forex sales on Monday, September 7, 2020.
  • This was expected to inject more liquidity to the retail end of the foreign exchange market and discourage hoarding and speculation.
  • However, the exchange rate against the dollar has remained volatile after the initial gains made, following the CBN’s resumption of sales of dollars to the BDCs.
  • The President of the Association of Bureau De Change Operators, Aminu Gwadebe, said he expects the impact of the extra liquidity in the market to be gradual.
  • Despite the drop in speculative buying of foreign exchange, the huge demand backlog by manufacturers and foreign investors still puts pressure and creates a volatile situation in the foreign exchange market.

NAFEX: The Naira appreciated against the dollar at the Investors and Exporters (I&E) window on Monday, closing at N385.67/$1.

  • This represents a 33 kobo gain when compared to the N386/$1 that it exchanged for on Friday, November 6.
  • The opening indicative rate was N386.21 to a dollar on Monday. This represents a 35 kobo drop when compared to the N385.86 that was recorded on Friday.
  • The N394 to a dollar was the highest rate during intra-day trading before it closed at N386 to a dollar. It also sold for as low as N380/$1 during intraday trading.
  • Forex turnover: Forex turnover at the Investor and Exporters (I&E) window declined by 68.5% on Monday, November 9, 2020.
  • According to the data tracked by Nairametrics from FMDQ, forex turnover dropped from $163.71 million on Friday, November 6, 2020, to $51.62 million on Monday, November 9, 2020.
  • The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds.
  • The drop in dollar supply after the previous trading day’s increase reinforces the volatility of the foreign exchange market. The supply of dollars has been on a decline for months due to low oil prices and the absence of foreign capital inflow into the country.
  • As part of the measures to check forex abuse and illegal transactions, the CBN last month directed the freezing of accounts of about 38 companies.
  • The average daily forex sale for last week was about $169.93 million, which represents a huge increase from the $34.5 million that was recorded the previous week.
  • Total forex trading at the NAFEX window in the month of September was about $1.98 billion, compared to $843.97 million in August.
  • The exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand, and a shaky economy that has been hit by the coronavirus pandemic.