The exchange rate at the parallel market remained stable closing at N470/$1 on Friday, July 17, 2020. However, on the officially recognized NAFEX market, the forex turnover dropped by 63.7% while the exchange rate depreciated for a third consecutive trading day closing at N388.50/$1.
Parallel Market: At the black market where forex is traded unofficially, the Naira remained stable again closing at N470 to a dollar on Friday, according to information from Aboki FX a prominent FX tracking website. An Independent check by Nairametrics research also indicates a stable parallel market rate of N470/$1.
NAFEX: The Naira depreciated marginally against the dollar at the Investors and Exporters (I&E) window on Friday by 50 kobo, closing at N388.50/$1, compared with the N388 that was reported on Thursday, July 16. The opening indicative rate was N388.07 to a dollar on Friday. This represents an 11 kobo drop when compared to the N387.96 to a dollar that was recorded on Thursday.
Nigeria maintains multiple exchange rates comprising the CBN official rate, the BDC rates, SMIS, and the NAFEX (I&E window). Nairametrics reported a few weeks ago that the government had set plans in motion to unify the multiple exchange rate in line with requirements from the World Bank. Nigeria is seeking a world bank loan of up to $3 billion. The country has been under pressure from the International Monetary Fund and the World Bank for currency reforms.
Meanwhile, forex turnover at the Investor and Exporters (I&E) window recorded a decrease on Friday, July 17, 2020, as it dropped by 63.7% day on day. According to the data tracked by Nairametrics, forex turnover dropped from $102.13 million on Friday, July 17, 2020, to $37.04 million on Thursday, July 16, 2020. The low turnover which has become a huge challenge reaffirms the scarcity of dollars and an indication of the liquidity pressure in the foreign exchange market. This is reflected in the fall in exchange rate. The turnover also falls short of $200 million recorded at major trading days during the last few weeks.
Nairametrics reported a few weeks ago that the CBN official rate has been adjusted from N360 to a dollar to N381 at its SMIS window where forex is sold to importers and SME’s. A note from Renaissance capital suggests that the naira might be depreciated again at the official window if the parallel market or unofficial rate continues to weaken further. As long as there are restrictions on access to dollars, businesses will continue to patronize the unofficial market to meet up with their demands.
Forex News: On Monday, the Central Bank of Nigeria (CBN) directed all authorised dealers to immediately discontinue the processing of Forms M for maize/corn importation into the country. This directive is contained in a notice that was addressed to authorised dealers and signed by Dr. O.S Nnaji, CBN’s Director in charge of Trade and Exchange Department.
According to a recent report from FSDH research, the forex inflows into the I&E window reduced significantly in the second quarter of 2020 on the back of lower foreign portfolio inflows.
The attendant effect of COVID-19 on oil price has constrained the capacity of the Central Bank of Nigeria to intervene further in the forex market as dollar inflow continues to dwindle despite rising demand.
The low forex inflow is primarily due to low remittances and low oil prices triggered by the coronavirus pandemic. This is also compounded by the suspension of sales of foreign exchange to Bureau De Change (BDCs) operators.