Naira gains Against The Dollar At I&E Window, Forex Liquidity Up By 242%

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Forex turnover at the Investor and Exporters (I&E) window recorded a huge increase on Monday, June 29, 2020, as it rose by 242%, a significant increase from what was recorded on Friday, June 26, 2020, in the foreign exchange market. This is according to data from the FMDQOTC, an exchange where forex is traded by foreign investors and exporters.

According to the data tracked by Nairametrics, forex turnover increased from $35.92 million on Friday, June 26, 2020, to $122.89 million on Monday, June 29, 2020, representing a significant increase of 242% a day on day. While the percentage increase in turnover appears huge, it still falls short of the $200 million recorded in January 2020.

It is unclear where the increase in forex supply came from as this is one of the highest daily sales we have recorded

Although there seems to be an improvement in liquidity in the foreign exchange market, the volatility and uncertainty of the market remain due to liquidity shortages across markets.  Liquidity remains quite tight in the foreign exchange market, with the average turnover in the I&E market significantly down to about $45.5 million in the month of May compared to $297.5 million that was recorded in January.

Several reports tracked by Nairametrics indicate that the accumulated demand for forex in the market could be between $1.5 and $5 billion as supply shortages persist. Forex shortages have persisted since the crash in oil prices coincided with the global lockdown due to COVID-19. The rise in demand and contrasting drop in supply has called for another round of devaluation, which the CBN has insisted it has plans to implement. A devaluation last occurred in March. The activities of the speculators seem to have continued unabated.

Speculators have thus patronized the parallel market, otherwise known as the black market, thereby widening the gap between it and the I&E window. The CBN maintains that the perceived demand cannot be substantiated as the lockdown induced by the COVID-19 pandemic suggest demand should be low due to travel restrictions and drop-in economic activities.

The further decline in liquidity could further fuel speculations in the black market where the exchange rate has traded at a premium of N60 over the last few weeks.

Exchange rate  

In related news, the exchange rate on the I&E window continued with its positive performance as it appreciated on Monday, closing at N386 to a dollar, compared to the N386.33 to a dollar that was reported on Friday, June 26, representing a 33 kobo gain. The opening indicative rate was N386.86 to a dollar for Monday. This represents a loss of 50 kobo when compared to the N386.36 opening rate recorded on Friday.

At the black market where forex is traded unofficially, the naira remained stable as it exchanged for N460 to a dollar on Monday. This was the same exchange rate that was recorded on Friday last week.

Nigeria continues to maintain multiple exchange rates comprising the CBN official rate, the BDC rates, and the NAFEX (I&E window). Nairametrics reported last week that the government is mulling unifying the multiple exchange rates in a bid to increase the amount available for state governments to share.

The stability of the exchange rate in the foreign exchange market can be attributed to a relative drop in demand for the dollar and improvement in forex liquidity. There still appears to be some uncertainty in the foreign exchange market as it is still not clear when the Central Bank of Nigeria (CBN) will resume sales of dollars to Bureau De Change Operators (BDCs).

The planned opening of the airports for flight operations by the federal government will act as a boost to the CBN’s intervention in the BDC segment of the market.

The World Bank had also applauded the CBN’s plan to unify its multiple exchange rate as that will help attract foreign investment to boost sustainable economic recovery and also support the various reforms being introduced by the government.

— Nairametrics

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