Naira gains big at black market as CBN’s new policy improves dollar supply

By Chike Olisah

Forex turnover rose significantly by 379.6%, as the Naira’s exchange rate at the NAFEX window

depreciated against the dollar to close at N394/$1 during intra-day trading on Tuesday, December 1.

Also, the Naira appreciated against the dollar, closing at N490/$1 at the parallel market on Tuesday, December 1, 2020, as the CBN’s new policy on diaspora remittances seems to be having a significant impact on the black market

In the amended procedures for receipt of diaspora remittances, the recipients are allowed to collect dollars and can sell at the black market in an apparent attempt to improve liquidity in the forex market and reduce the disparity between the black market and official market.

Parallel market: According to information from Abokifx – a prominent FX tracking website, at the black market where forex is traded unofficially, the Naira appreciated against the dollar to close at N490/$1 on Tuesday.

This represents a N10 gain when compared to the N500/$1 that it exchanged for on Monday, November 30.

• 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.
• However, the gains appear to have been completely erased with the recent crash of the exchange rate.
• The CBN has sold over $1 billion to BDCs since they resumed forex sales on Monday, September 7, 2020.
• This was expected to inject more liquidity into 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.
• Despite the CBN intervention, 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 depreciated against the dollar at the Investors and Exporters (I&E) window on Tuesday, closing at N394/$1.

• This represents a N3.75 when compared to the N390.25 that it exchanged for on Monday, November 30.
• The opening indicative rate was N391.70 to a dollar on Tuesday. This represents a N1.35 drop when compared to the N390.35 that was recorded on Monday.
• The N396 to a dollar was the highest rate during intra-day trading before, it still closed at N394 to a dollar. It also sold for as low as N380/$1 during intra-day trading.
• Forex turnover: Forex turnover at the Investor and Exporters (I&E) window increased by 379.6% on Tuesday, December 1, 2020.
• According to the data tracked by Nairametrics from FMDQ, forex turnover rose from $35.15 million on Monday, November 30, 2020, to $168.57 million on Tuesday, December 1, 2020.
• The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds.
• The sharp 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.
• 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.
• 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 an obligation of manufacturers to their foreign suppliers that continues to increase in the face of dollar shortages.

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.