Exchange rate stabilizes across forex markets as CBN intervenes

At the black market, the Naira remained stable against the dollar to close at N465/$1 on Tuesday.

By Chike Olisah

Forex turnover rose by 173% as Nigeria’s exchange rate at the NAFEX window remained stable against the dollar to close at N385.67/$1 during intra-day trading on Tuesday, November 10.

Also, the naira remained stable against the dollar, closing at N465/$1 at the parallel market on Tuesday, November 10, 2020, as Bureau De Change operators get another round of dollar supply from the Central Bank of Nigeria.

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

This was exactly the same rate that it exchanged for on Monday, November 9.

• 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 remained stable against the dollar at the Investors and Exporters (I&E) window on Tuesday, closing at N385.67/$1.

• This was the same rate that it exchanged for on Monday, November 9.
• The opening indicative rate was N385.83 to a dollar on Tuesday. This represents a 38 kobo gain when compared to the N386.21 that was recorded on Monday.
• The N393.57 to a dollar was the highest rate during intra-day trading before it closed at N385.67 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 rose by 173% on Tuesday, November 10, 2020.
• According to the data tracked by Nairametrics from FMDQ, forex turnover rose from $51.62 million on Monday, November 9, 2020, to $140.95 million on Tuesday, November 10, 2020.
• The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds.
• The increase in dollar supply after the previous trading day’s drop 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.

Chike Olisah

Chike Olisah is a graduate of accountancy with over 15 years working experience in the financial service sector. He has worked in research and marketing departments of three top commercial banks. Chike is a senior member of the Nairametrics Editorial Team. You may contact him via his email- chike.olisah@nairametrics.com.