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Naira falls to 12-week low at black market as demand pressure increases

At the black market, the Naira depreciated against the dollar to close at N475/$1 on Monday.

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Forex turnover dropped marginally by 2.26%, as Nigeria’s exchange rate at the NAFEX window remained stable against the dollar to close at N386/$1 during intra-day trading on Monday, November 16.

Also, the naira depreciated against the dollar, closing at N470/$1 at the parallel market on Friday, November 13, 2020 – its weakest level in 12 weeks as the inability of the official market to meet increasing forex demand of manufacturers and traders put further pressure on the parallel market

This is despite the allocation of about $1 billion to Bureau De Change (BDC) Operators since September by the CBN.

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 N475/$1 on Monday.

This represents a N5 drop when compared to the N470/$1 that it exchanged for on Friday, November 13.

  • 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 is to boost the supply of dollars in the foreign exchange market and reduce the high demand for forex by traders.
  • The CBN has sold about $1 billion 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 remained stable against the dollar at the Investors and Exporters (I&E) window on Monday, closing at N386/$1.

  • This was the same rate that it exchanged for on Friday, November 13.
  • The opening indicative rate was N385.50 to a dollar on Monday. This also represents a N1 gain when compared to the N386.50 that was recorded on Friday.
  • The N392.80 to a dollar was the highest rate during intra-day trading before it still closed at N386 to a dollar. It also sold for as low as N381/$1 during intra-day trading.

Forex turnover: Forex turnover at the Investor and Exporters (I&E) window declined marginally by 2.26% on Monday, November 16, 2020.

  • According to the data tracked  from FMDQ, forex turnover dropped from $113.95 million on Friday, November 13, 2020, to $111.38 million on Monday, November 16, 2020.
  • The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds.
  • The continuous drop in dollar supply 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.
  • 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.
  • A financial expert and Managing Director of Financial Derivatives had stated that he expects the exchange rate at the parallel market to likely depreciate to N470-N475/$1 in November and December due to low oil prices that will further limit foreign exchange supply.
  • Some members of MPC of the CBN have expressed serious concerns over the increasing demand pressure in the country’s foreign exchange market. This is as obligation of manufacturers to their foreign suppliers continues to increase in the face of dollar shortages.
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CURRENCIES

Nigeria’s external reserve loses $24 million in first week of 2022

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Nigeria’s external reserve dipped $24.3 million in the first week of the year to close at $40.49 billion as of 7th January 2021. This represents a 0.06% decline when compared to $40.42 billion recorded as of the start of the week.

This is according to data from the Central Bank of Nigeria (CBN) on the daily reserve movement.

The nation’s foreign reserve had gained $5.99 billion in October, following a $2.76 million gain recorded in September 2021 as a result of the $4 billion Eurobond secured by the federal government and the $3.35 billion IMF Special Drawing Rights facility.

However, the reserve started a downward movement in November after it has crossed the $41 billion mark. Nigeria’s external reserve lost $611.01 million in November, which was followed with a $666.17 million decline in December.

Meanwhile, the annual gain for 2021 was $5.15 billion.

The continuous decline in the nation’s external reserve is attributable to the intervention by the apex bank in ensuring forex stability in the country. Data from the Central Bank shows that a total of $8.97 billion was supplied by the bank to the I&E window, SME, and Invisibles.

The Investors and Exporters window (I&E) is the official market for the sale of foreign exchange in the country after the Central Bank halted the sale of forex to BDC operators mid-2021. However, a sum of $2.77 billion had been sold to the BDC operators between January and June 2021.

Given the managed floating foreign exchange system adopted by the apex bank, the CBN occasionally intervenes in the forex market to ensure they manage the volatility that could be witnessed in the market by releasing funds from the reserve.

A cursory look at the data from the research on the I&E Window, at least a sum of $337.7 million was traded on the exchange, while the official exchange rate appreciated by 4.3% to close at N416.25/$1 in the review week compared to N435/$1 recorded as of the end of the previous week.

What you should know about external reserves

Foreign reserves are assets held on reserve by the central bank of a country used to back liabilities and influence monetary policy. They include foreign banknotes, deposits, bonds, treasury bills and other foreign government securities.

These assets serve many purposes but are most significantly held to ensure that a government or its agency has backup funds if their national currency rapidly devalues. Foreign exchange reserves are also called international or external reserves.

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CURRENCIES

FOREX inflow into Nigeria surges by 64% to $30 billion in Q3 2021

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The amount of foreign exchange that came into Nigeria in Q3 2021, skyrocketed by 64% to $30.18 billion compared to $18.4 billion recorded in the previous quarter. A surge which is attributed to newly acquired federal government loans, recorded in the review period

This is according to data from the Central Bank of Nigeria (CBN) statistical bulletin for Q3 2021.

Dollar inflow of $30.18 billion in the third quarter of 2021, represents the highest quarterly inflow recorded by Nigeria since Q1 2020, before the effect of the covid-19 pandemic. Similarly, on a year-on-year basis, the inflow increased by 14% compared to $26.47 billion recorded in the corresponding period of 2020.

During the period under review, the Nigerian government secured two external loans, which summed up to $7.34 billion, representing $3.34 billion IMF Special Drawing Rights (SDRs) in August and $4 billion Eurobond in September 2021.

Highlights

  • Inflows through the Central Bank of Nigeria stood at $16.83 billion, which accounts for 55.8% of the total FX inflow in the review period.
  • Also, the $16.83 billion inflow through the CBN in Q3 2021 is 158% and 141% higher than $6.51 billion and $6.98 billion recorded in Q2 2021 and Q3 2020 respectively.
  • Inflows from autonomous sources at $13.35 billion, accounted for 44.2% of the total inflows. In contrast to the previous quarter, it increased by 12% compared to $11.89 billion recorded in Q2 2021.
  • On the other hand, inflows through autonomous sources, declined by 32% compared to $19.49 billion recorded in the corresponding period of the previous year.
  • Autonomous sources of FX includes foreign exchange received from the exportation of non-oil items, capital inflows and invisibles. A further breakdown shows that indivisibles, also includes capital importations, remittances, and other OTC purchases.

Moreso, the increase in the forex inflows from the CBN can be attributed to the significant increase recorded in flows through the Treasury Single Account (TSA) and Third Part Funds in September 2021.

Specifically, funds through the TSA and Third Party Funds grew by over 600% to $2.47 billion in September of the review year, while a sum of $3.2 billion was recorded in Q3 2021, accounting for 11% of the total inflows recorded in the quarter under review.

The Central Bank of Nigeria has continued to intervene in the official forex market, following the ban on the sale of FX to BDC operators in the country. In the same vein, a total of $32 billion exchanged hands in the official Window, while the CBN supplied a sum of $13.16 million to the market between January and September 2021.

The increase in the amount of forex inflow in the county is good for the Nigerian economy as it will help boost liquidity in the system. In this case, the Central Bank has used the newly acquired loans to boost the country’s external reserve, whilst intervening in the market in order to stabilise the local currency.

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CURRENCIES

BDC ban working as Forex demand migrates to Deposit money banks – CBN

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Deposit money banks have witnessed an increase in foreign exchange demand due to the central bank’s ban of forex sale to Bureaux De Change (BDCs).

This was disclosed by CBN deputy governor, Adamu Edward Lametek in his statement at the last Monetary Policy Metting meeting.

He stated that the naira exchange rate has remained stable since the last adjustment at the I&E window, despite tight liquidity management and a recent change in the foreign exchange (FX) management approach.

Adamu stated that there has been a halt to the rapid depreciation seen in the black market. He said, “The initial panic-driven depreciation at the parallel market has gradually given way to real market forces.”

He also stated that the CBN ban has successfully shifted the FX demand to the DMB’s.

Apparently, the revised FX management strategy, which excludes BDCs from direct sales, is working as a substantial share of FX demand has migrated to the DMB’s window. We should expect this pattern to continue in the coming months as confidence in the modified framework grows,” he said.

He added “Overall, I figured out that the primary purpose of the policy at this point would be to preserve and possibly deepen the relative stability the economy has started to record. The current monetary policy configuration continues to be relevant in my view.”

He also stated that despite the positive outcomes so far on inflation and growth, the economy is yet to attain the pre-pandemic level on several fronts. Employment, for instance, continues to be a major policy concern.

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