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Currencies

Exchange rate falls across the forex markets as CBN devalues the naira

Naira depreciated against the dollar at the Investors and Exporters (I&E) window.

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Dollar, Exchange rate, FOREX, NAFEX market turnover drop by 59%, Naira crashes to N470/$1 as currency uncertainty worsens 

Nigeria’s exchange rate at the NAFEX window depreciated to N386 during last intraday trading on Friday, August 7, 2020. In another development, the exchange rate at the parallel market dropped marginally on Friday as it closed at N475/$1 after exchanging as high as N486/$1.

Market Watch

Parallel Market: At the black market where forex is traded unofficially, the Naira depreciated against the dollar to close at N475/$1 on Friday, according to information from Abokifx, a prominent FX tracking website. This represents a N1 drop when compared to the N474 to a dollar that it exchanged on Thursday, August 6. However, in a deeper drop, Nairametrics forex tracker obtained a price as high as N486/$1 from some traders suggesting market volatility still persists.

NAFEX: The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Friday, closing at N386/$1.

  • This represents a 50 kobo drop when compared to the N385.50 rate close that was reported on the last trading day, Thursday, August 6.
  • The opening indicative rate was N385.55 to a dollar on Friday. This represents a N1.33 gain when compared to the N386.88 to a dollar that was recorded on Thursday.
  • The Naira fell to as high as N390 during intraday trading before strengthening to the closed rate of N386. It also sold for as low as N359/$1 during intraday trading.

READ ALSO: Manufacturing sector in Nigeria and the reality of a “new normal”

Forex is sold at several prices and at different times during the day.

Specta

Forex Turnover: Meanwhile, forex turnover at the Investor and Exporters (I&E) window recorded a decline on Friday, August 7, 2020, as it dropped by 13.5% day on day.

  • According to the data tracked by Nairametrics from FMDQ, forex turnover declined from $106.66 million on Thursday, August 6, 2020, to $92.22 million on Friday, August 7, 2020.
  • The forex turnover for the day is the highest daily volume recorded in about 3 weeks. The dollar supply which had remained weak improved significantly during the day’s trading.
  • The average forex sale for last week was a low volume of about $32 million which is a slight improvement on the $27 million that was recorded the previous week. FX turnover which topped the $100 million mark after weeks of very low volume, still falls short of the over $200 million turnover that was recorded in January.
  • Total forex trading at the NAFEX window in the month of July was $937 million compared to $875 million in June.
  • The exchange rate disparity between the official NAFEX rate and the black-market rate widened further on Thursday staying as wide as N88.5. 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.

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 few weeks have been most challenging for the foreign exchange market as it witnessed very low liquidity. Although there was some improvement in dollar supply this week, the downward slide of the naira against the greenback and some other major currencies still persists due to tightened liquidity in the system.

  • According to a report from FSDH research, forex inflows into the I&E window had dropped significantly in the second quarter of 2020 on the back of lower foreign portfolio inflows.
  • Although there was a slight improvement in the month of July, the turnover of $937 million is a far cry from the $3.19 billion, $5.02 billion and $3.7 billion turnover that was recorded in the months of January, February and March respectively before the lockdown which was triggered by the coronavirus pandemic.
  • The low oil prices have constrained the CBN’s capacity to intervene further in the foreign exchange market as dollar inflow still remains very low.

The exchange rate has faced significant pressure in both the NAFEX window and the black market. The pressure stemmed from declining external reserves and low oil price.

READ ALSO: Global shares plunge, as US, China tension heats up

Nairametrics had reported that in a move seen as a step towards the unification of the exchange rate, the Central Bank of Nigeria (CBN), devalued the official exchange rate to N380/$1 from N360/$1. The adjustment which was formally done on CBN’s website suggests the CBN may have moved to unify the exchange rate in line with the promise earlier made by the apex bank’s Governor, Godwin Emefiele.

This is the second devaluation of the official rate since the crash of oil prices and the outbreak of coronavirus pandemic. The first one occurred in March when the official rate was adjusted from N307/$1 to N361/$1.

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Chike Olisah is a graduate of accountancy with over 15 years working experience in the financial service sector. He has worked in research and marketing departments of three top commercial banks. Chike is a senior member of the Nairametrics Editorial Team. You may contact him via his email- [email protected]

1 Comment

1 Comment

  1. OluOlu

    August 10, 2020 at 10:28 am

    I don’t believe their sincerity about Naira. Naira will keep falling in the hands of these managers who hate Naira. Suddenly the youth of Nigeria will come to their homes and their children to ask them questions about their hate for Naira and their country

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Currencies

Naira falls at NAFEX window as dollar supply continues to decline

The exchange rate between the naira and the dollar depreciated closing at N394.50/$1 at the NAFEX Window.

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Central Bank of Nigeria, Foreign exchange market, Naira vs dollas, IMF, Foreign Reserves, External reserves, CBN, Why do we all love the dollar? 

On January 25, 2021, the exchange rate between the naira and the dollar depreciated closing at N394.50/$1 at the NAFEX (I&E Window) where forex is traded officially.

Forex turnover, however, dropped further by about 10.2% as pressure on the foreign exchange market continues.

The Central Bank of Nigeria (CBN) has moved to create more liquidity in the foreign exchange market as they insisted that deposit money banks and International Money Transfer Operators (IMTOs) must pay diaspora remittances to beneficiaries in dollars as against the initial practice of paying in naira.

This will also help to create more stability and transparency in the forex market.

Also, the exchange rate at the black market where forex traded unofficially remained stable at N477/$1. The exchange rate at the parallel market closed at N477/$1 on the previous trading day of January 22, 2021.

Specta

The exchange rate disparity between the parallel market and the official market is about N82.50, representing a 20.9% devaluation differential.

The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Monday, closing at N394.50/$1. This represents a 33 kobo drop when compared to the N394.17/$1 that it closed on the previous trading day.

  • The opening indicative rate was N393.30 to a dollar on Monday, this represents a 15 kobo drop when compared with the N393.15 to a dollar that was recorded on Friday, January 22, 2021.
  • The N395 to a dollar was the highest rate during intra-day trading before it closed at N394.50 to a dollar. It also sold for as low as N390/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window dropped by 10.2% on Monday, January 25, 2021.
  • According to the data tracked by Nairametrics from FMDQ, forex turnover declined from $44.51 million on Friday, January 22, 2021, to $39.99 million on Monday, January 25, 2021.
  • The exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand, and a shaky economy that has been hit by the coronavirus pandemic.
  • There are fears that the exchange rate at the black market might be under pressure in the coming weeks as importers scramble for dollars to meet their demands.

Oil price steady rise

Brent crude oil price is at about $55.60 per barrel as of Tuesday morning, as it moves towards the $60 mark, a strong sign that global demand could sustain price increases in 2021.

  • This appears as a boost to Nigeria as the country’s crude oil price benchmark for 2020 was $40 while it projected an oil production output of 1.8 million barrels per day.
  • Nigeria has a production capacity of 2.5 million barrels per day but is subject to OPEC’s crude oil production cuts, which are expected to help sustain higher oil prices.
  • The higher oil prices and steady production output have positively impacted Nigeria’s external reserves, rising sharply to $36.304 million according to central bank data dated January 14, 2020.
  • This is the highest level since July 2020 and a sign that higher oil prices and steady output levels may be contributing significantly to Nigeria’s foreign exchange position.

Nigeria rising external reserves

  • The external reserve has risen to $36.508 billion as of January 21, 2021.
  • Nairametrics had earlier reported that the government may have taken receipt of the $1-1.5 billion World Bank loan.
  • The external reserves have increased by $1.135 billion since December 31, 2020, when it closed the year at $35.3 billion.
  • Nigeria also needs the external reserves to hit $40 billion if it is to adequately meet some of the pent up demand that has piled up since 2020 when oil prices crashed and the pandemic caused major economic lockdowns.

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Currencies

Naira falls across forex markets as CBN moves against IMTOs

The exchange rate at the black market where forex traded unofficially depreciated at N477/$1.

Published

on

Naira falls across forex markets as businesses resume after public holidays

On January 22, 2021, the exchange rate between the naira and the dollar depreciated closing at N394.17/$1 at the NAFEX (I&E Window) where forex is traded officially.

Forex turnover, however, dropped by about 42.2% as pressure on the foreign exchange market continues.

The Central Bank of Nigeria (CBN) in a new circular, read the riot act to the International Money Transfer Operators (IMTOs) as they have threatened to sanction some of them who still facilitate diaspora remittances in naira, contrary to its earlier directive that it must be in foreign currency.

READ: Nigeria faces prolonged exchange rate crisis as oil prices remain stuck at $40

Also, the exchange rate at the black market where forex traded unofficially depreciated at N477/$1. The exchange rate at the parallel market closed at N475/$1 on the previous trading day of January 21, 2021, representing a N2 drop.

Specta

The exchange rate disparity between the parallel market and the official market is about N82.83, representing a 17.36% devaluation differential.

READ: CBN to prevent exporters with unrepatriated export proceeds from banking services

The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Friday, closing at N394.17/$1. This represents a 17 kobo drop when compared to the N394/$1 that it closed on the previous trading day.

  • The opening indicative rate was N393.15 to a dollar on Friday, this represents a N1.01 gain when compared with the N394.16 to a dollar that was recorded on Thursday, January 21, 2021.
  • The N395 to a dollar was the highest rate during intra-day trading before it closed at N394.17 to a dollar. It also sold for as low as N390/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window dropped by 42.2% on Friday, January 22, 2021.
  • According to the data tracked by Nairametrics from FMDQ, forex turnover declined from $77.04 million on Thursday, January 21, 2021, to $44.51 million on Friday, January 22, 2021.
  • The exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand, and a shaky economy that has been hit by the coronavirus pandemic.
  • There are fears that the exchange rate at the black market might be under pressure in the coming weeks as importers scramble for dollars to meet their demands.

READ: A summer of higher food prices, limited room for monetary policy

Oil price steady rise

Brent crude oil price is at about $55.34 per barrel as of Monday morning, as it moves towards the $60 mark, a strong sign that global demand could sustain price increases in 2021.

  • This appears as a boost to Nigeria as the country’s crude oil price benchmark for 2020 was $40 while it projected an oil production output of 1.8 million barrels per day.
  • Nigeria has a production capacity of 2.5 million barrels per day but is subject to OPEC’s crude oil production cuts, which are expected to help sustain higher oil prices.
  • The higher oil prices and steady production output have positively impacted Nigeria’s external reserves, rising sharply to $36.304 million according to central bank data dated January 14, 2020.
  • This is the highest level since July 2020 and a sign that higher oil prices and steady output levels may be contributing significantly to Nigeria’s foreign exchange position.

READ: A Joe Biden presidency and its impact on Nigeria’s oil

Nigeria rising external reserves

  • The external reserve has risen to $36.508 billion as of January 21, 2021.
  • Nairametrics had earlier reported that the government may have taken receipt of the $1-1.5 billion World Bank loan.
  • The external reserves have increased by $1.135 billion since December 31, 2020, when it closed the year at $35.3 billion.
  • Nigeria also needs the external reserves to hit $40 billion if it is to adequately meet some of the pent up demand that has piled up since 2020 when oil prices crashed and the pandemic caused major economic lockdowns.

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Currencies

CBN to prevent exporters with unrepatriated export proceeds from banking services

From January 31, 2021, the CBN will bar exporters who fail to repatriate export proceeds from accessing banking services.

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CBN to restrict foreign exchange on more food imports

The Central Bank of Nigeria (CBN) has announced the prohibition of all Nigerian exporters who are yet to repatriate their export proceeds, from banking services effective from January 31, 2021.

The apex bank has a standing policy that instructs exporters to repatriate exports within 90 days for oil and gas and 180 days for non-oil exports constitute a breach of the extant regulation.

In a letter issued by one of the commercial banks to its exporters, and seen by Nairametrics, it cited the CBN’s new circular stating that it will bar exporters who do not repatriate from accessing banking services.

See excerpt of the CBN circular barring exporters from accessing banking services.

“Please be informed that the Central Bank of Nigeria (CBN) through its circular referenced TED/EXP/CON?NEX/01/001 dated 13th January 2021 has instructed that all exporters with unrepatriated export proceeds before 31st January 2021 should be barred from accessing all banking services.”

Specta

In lieu of this, all concerned exporters are urged to comply with the directive before the specified date.

Why this circular?

Analysts believe that the directive is part of a monetary control mechanism by policymakers to maintain relative stability in the exchange rate, especially after the pandemic created a wide disparity between the official exchange and the parallel market rates, eliminating incidences of over-invoicing, transfer pricing, double handling charges, etc.

  • By repatriating export proceeds via the NAFEX (Investor and Exporter window) the central bank believes this will improve liquidity in the official market and perhaps strengthen the naira at the black market where wired transfers often cost a premium of N5-N10 over the street exchange rate of N475/$1.
  • Most export proceeds find their way to the parallel market where exporters can exchange for higher naira value-boosting their gains on foreign currency conversions.
  • It is to be seen if exporters will comply with this directive or seek other means of avoiding the hammer of the exporters. Most exporters already find a way to avoid these hammers by opening foreign bank accounts where most of the export proceeds are warehoused and then sold at the black market.
  • Some rely on complex intercompany transactions to avoid repatriating the forex through the NAFEX window

What you should know

  • According to Bloomberg sources, the new directive applies to exports up until June last year.
  • In a bid to ensure prudent use of foreign exchange resources, the Central Bank of Nigeria had earlier instructed authorised dealers and exporters to only open forms M for letters of credit, bills for collection, and other forms of payment

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