Forex turnover at the Investor and Exporters (I&E) window rose by 66.42% on Monday, June 22, 2020, providing a semblance of a boost to liquidity 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 rose from $38.12 million last week Friday to $63.44 million on Monday representing a 66.42% increase day on day. While the increase in percentage terms appears to be high, daily turnover of $63.44 million is still far from the over $200 million recorded in January 2020.
Although the liquidity in the foreign exchange market appears to have improved, the volatility and uncertainty of the market remain, particularly 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 the accumulated demand for forex in the market could be between $1.5 -$5 billion as supply shortages persist. Forex shortages have persisted since the crash in oil prices coincided with the worldwide lockdown due to COVID-19. The rise in demand and contrasting fall 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. Speculators have thus patronized the parallel market otherwise known as the black market thereby widening the disparity between it and the I&E window.
In related news, the exchange rate on the I&E window appreciated marginally on Monday, closing at N386 to a dollar, compared to the N386.50 to a dollar that was reported on Friday, June 19, representing a 50 kobo gain. The stability of the naira in the foreign exchange market continues today, as the local currency was marginally strengthened at the Investors and Exporters (I&E) window.
At the black market where forex is traded unofficially, the exchange rate remained stable at N455 to a dollar on Monday. This was the same exchange rate that was recorded on Friday.
Nigeria continues to maintain multiple exchange rates comprising of the CBN official rate, the BDC rates, and the 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.
Nairametrics had reported that Nigeria’s external reserve dropped to $36.316 billion as of June 18, from $36.577 billion that was recorded on June 3. This represents a loss of $261 million in 15 days. The drop in external reserve puts further pressure on the foreign exchange market as it negatively impacts on CBN’s ability to intervene in the market.