CBN selling forex to foreign investors at N443/$1

 

 by Ubah Jeremiah Ifeanyi

 The Central of Nigeria is selling forex to foreign portfolio investors at a spot rate of N443/$.

This is according to information obtained from forex traders who are privy to CBN block sales. According to our source, 35% of total funds traded on Wednesday were sold as spot at the rate of N443/$ while the remainder as 150-day forward at the rate of N452.15/$.

The Apex bank has over the last one week sold forex to foreign portfolio investors at a significant premium to the daily average closing rate of N410/$1 or N415/$1 depending on the closing price traded, which often represents the preferred band of a closely controlled exchange rate.

Why this matters

Currently, the exchange rate at the Investors and Exporters window trades at N415.07/$1, while it has maintained an average of N415.1/$1 so far in the month of October 2021.

However, this rate at which FX is being sold to foreign investors may be indicative of where the CBN sees the exchange rate in the future.

A message exchanged by traders and seen by Nairametrics, stated:

“CBN sold yesterday to FPIs with rates unchanged from the previous day. 35% of total funds were sold as spot at the rate of $/N443 and the remainder as 150-day forward at the rate of $/N452.15.

“We estimate CBN sells to FPIs about $90m – 120m on a weekly basis via this intervention. Naira in the parallel market gained 1 big figure yesterday with offers for the greenback now reported at N571, the lowest level in more than 2 weeks…..the 30-day moving average stands at $41.598 billion as of October 25 2021.”

What this means

The CBN appears to be selling forex to FPIs at an increasing pace suggesting there is a concerted effort to clear out some of the forex backlogs.

However, Nairametrics understands there is between $1.5 billion to $3 billion of forex backlogs to clear which could take weeks, if not months to clear assuming the apex bank continues to sell at the current spate. Despite the recent sale, traders still wonder why the apex bank continues to stick to its N420-N415 band when it’s obvious this is probably not reflective of market reality.

On the black market, the exchange rate strengthened rising to as high as N570/$1 on the back of increased liquidity at the official market and stringent measures to tighten forex round-tripping.

In a recent Clubhouse session termed “OnTheMoney” hosted by Nairametrics, a guest analyst suggested a likely strengthening of the naira at the black market based on the increasing forex reserves and higher oil prices.