The exchange rate between the naira and dollar depreciated to N387.25 at the Investor and Exporters (I&E) window closing the week lower as investors scrambled for forex supplies.
The exchange rate at the I&E window differs from the CBN’s published exchange rate which is currently stated at N360/$1.It is also different from the exchange rate at the black market which is closed at N445/$1 according to information on AbokiFX as of Friday, May 8th, 2020.
Available information from the FMDQ (where FX is traded by investors) shows that the naira depreciated against the dollar by N0.89, closing at N387.25 to a dollar, as against the N386.36 to a dollar that it opened with on Friday, May 8th, 2020. The exchange at the start of the week was N385.33.
A cursory view of the data from the FMDQ shows that the turnover was $102.28 million—an improvement from previous weeks. The CBN had announced it will start selling forex this week after weeks of zero sales due to the lockdown. Despite this, it is still a far cry from the $300 million – $400 million per day that it traded in February.
The depreciation of the naira can be attributed to the increased demand by importers and foreign portfolio investors, who want to repatriate the proceeds of their funds, in the debt market. Analysts who spoke to Nairametrics indicate the situation has been like this for weeks and may have culminated in the repricing witnessed in the futures market on Thursday.
On Thursday, Nigeria’s 5 years onshore Non-Deliverable forward contract posted its biggest drop by plunging 27% from N413.36 to close at N569.69 a price differential of N156. The 1-year Non-Deliverable forward contract was down 5% from N394.29 to close at N421.22 a price differential of N26.93.
One month NDF is now N395/$1 suggesting an imminent devaluation in the I&E window which could also impact the current official exchange rate of N360/$1 as well as the BDC rate which was devalued to N370/$1 some weeks back.
The global economy has been struggling to contain the economic effect of the Covid-19 Pandemic and Nigeria is not excluded. As an oil-dependent economy, Nigeria needs dollar inflows to maintain a stable exchange rate. However, with oil prices down and supply cuts in place following a landmark OPEC deal, the outlook for the exchange rate is bleak.