Nigeria’s exchange rate at the NAFEX window depreciated to as high as N389.5 during intraday trading on Tuesday July 28th 2020. In contrast, the exchange rate at the parallel market remains unchanged after hitting a new low on Monday July 27th when it closed at N475/$1 on.
Market Watch
NAFEX: The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Tuesday, closing at N389.50/$1. This represents a 25 kobo drop when compared to the N389.25 rate close that was reported on Monday, July 27. The opening indicative rate was N388.44 to a dollar on Tuesday. This represents a 34 kobo drop when compared to the N388.10 to a dollar that was recorded on Monday.
The naira fell to as high as N390.50 during intraday trading before strengthening to the closed rate of N389.50. It also sold for as low as N380/$1 during intraday trading. Forex is sold at several prices during the day.
The 0.4% depreciation week on week (it was N388.5/$1 coming into last week) is perhaps attributed to the weaker forex turnover that was experienced last week.
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Parallel Market: At the black market where forex is traded unofficially, the Naira remain unchanged against the dollar to close at N475/$1 on Tuesday, according to information from Abokifx, a prominent FX tracking website. This was the same rate that it exchanged on Monday, July 28. Some traders contacted by Nairametrics research also confirmed the same price of N475/$1.
Forex Turnover: Meanwhile, forex turnover at the Investor and Exporters (I&E) window recorded a slight gain on Tuesday, July 28, 2020, as it rose by 1.15% day on day. According to the data tracked by Nairametrics from FMDQ, forex turnover increased from $38.86 million on Monday, July 27, 2020, to $39.31 million on Tuesday, July 28, 2020.
The average forex sale for last week was as low as $27 million compared to $47 million the week before. We also noted that on no day last week did we record a sale close to or above $100 million, the first time this month. FX turnover remains subdued this week as Nigeria approaches a two day holiday in the last two days of July.
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Exchange rate disparity
The exchange rate disparity between the official NAFEX rate and the black-market rate remained wide on Tuesday staying as wide as N85.50. Nigeria maintains multiple exchange rates comprising the CBN official rate, the BDC rates, SMIS, and the NAFEX (I&E window).
Exchange rate unification remains on the cards and yet to be implemented weeks after the central bank governor confirmed it will be executed.
The minister of Finance also admitted that Nigeria was seeking unification of its forex Windows, a move thought to be in line with the 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.
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Covid-19 Pressures
Nigeria’s airspace remains closed to commercial international flight operations and won’t be open till October 2020. Foreign Travel has often been a source of demand for the greenback.
The recent demand for dollars at the parallel market is thought to be fueled by speculators. The parallel market also caters to forex trades through wire transfers especially for buyers who cannot fulfil their dollar demands at the I&E window or the SMIS window. The exchange rate for wired transfer is often at a premium to the black market rate.
Forex Challenges: Last week has been one of the most challenging for the foreign exchange market as it witnessed very low liquidity. The downward slide against the greenback and some other major currencies appears to have continued this week.
Dollar shortages have plagued the country for some months after the crash in oil prices, Nigeria’s major foreign exchange earner, thereby shifting demand to the black market. The increasing disparity between the official rate and the black market rate will most likely encourage more speculation at the foreign exchange market.
In a bid to conserve foreign exchange, the Central Bank of Nigeria (CBN) directed banks to stop processing new trade documents for importation of maize.
According to a report from Reuters, the prospect of anaemic growth, dwindling oil revenues, declining remittances and dollar shortages exacerbated by the central bank’s latest debits on deposit money banks aimed at curbing naira liquidity and currency speculation are putting pressure on lending by banks and the quality of existing assets.