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Nairametrics
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Home Markets Currencies

Naira falls to N465/$1 as forex ban on food imports pile pressure on black market

Chike Olisah by Chike Olisah
September 17, 2020
in Currencies, Spotlight
Naira strengthens at forex market despite significant drop in dollar supply, Exchange rate gains at the black market as FX Turnover rises over 1000%.
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Nigeria’s exchange rate at the NAFEX window remained stable for the third consecutive trading day to close at N386/$1 during intraday trading on Wednesday, September 16.

In sharp contrast, the naira remained depreciated to close at N465/$1 at the parallel market as the ban on forex allocation for food and fertilizer imports seems to be putting pressure on the market.

READ: Finding Balance: GTB’s impeccable gains versus its notable losses

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Parallel Market: At the black market where forex is traded unofficially, the Naira depreciated against the dollar to close at N465/$1 on Wednesday, according to information from Abokifx, a prominent FX tracking website. This represents a N5 drop when compared with the N460/$1 that it exchanged on Tuesday, September 15

Currency Developments

  • The local currency has strengthened by about 7.8% within the last one week at the black market, as the Central Bank of Nigeria introduced some measures targeted at exporters and importers in order to try to boost the supply of dollars in the foreign exchange market and reduce the high demand for forex by traders.
  • The CBN has sold over $150 million to BDCs since the resumed forex sales on Monday, September 7, 2020. This was expected to inject more liquidity to the retail end of the foreign exchange market and discourage hoarding and speculation.
  • However, the exchange rate against the dollar has failed to sustain the initial gains made after the CBN announced plans to provide liquidity.
  • BDC operators have urged the apex bank to reconsider the margin allowed for the currency traders as it was inadequate to meet their expenses.
  • We also noted that forex traders monitored during the previous week appear to hoard forex as they anticipated further depreciation in the market.
  • There has been a sharp drop in speculative buying of foreign exchange, although demand backlog by manufacturers and foreign investors still puts pressure and creates a volatile situation in the foreign exchange market.

READ: NESG’s allegations, malicious attempt to tarnish the economic recovery program- CBN

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

  • This was exactly the same rate that it exchanged for on Tuesday, September 15.
  • The opening indicative rate was N386 to a dollar on Wednesday. This represents a 50 kobo gain when compared to the N386.50 to a dollar that was recorded on Tuesday.
  • The N395.13 to a dollar is the highest rate during intraday trading before closing at the rate of N386/$1. It also sold for as low as N380.50/$1 during intraday trading.

READ: CBN sequesters N321.6 billion from banks in new CRR Debits

Forex Turnover: Forex turnover at the Investor and Exporters (I&E) window increased by 406.6% on Wednesday, September 16, 2020.

  • According to the data tracked by Nairametrics from FMDQ, forex turnover rose sharply from $55.71 million on Tuesday, September 15, 2020, to $282.23 million on Wednesday, September 16, 2020.
  • The Central Bank of Nigeria (CBN) is still battling to clear the huge backlog of foreign exchange demand, especially by foreign investors wishing to repatriate back their funds.
  • The drop in forex supply after the previous day’s record increase reinforces the volatility of the foreign exchange market. The supply of dollars has been on a decline for months due to low oil prices and the absence of foreign capital inflow into the country.
  • The average daily forex sale for last week was about $34.5 million which represents a drop from the $58.52 million that was recorded the previous week.
  • Total forex trading at the NAFEX window in the month of August was about $857 million compared to $937 million in July.
  • In a bid to further reduce the demand for the scarce foreign exchange and reduce the pressure on the country’s external reserve, President Muhammadu Buhari directed the CBN to stop forex allocation for fertilizer and food imports. This move seems to have increased the pressure on the black market as importers seek for an alternative.

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Tags: Business NewsCBNforexNAFEXNairaNigeria News
Chike Olisah

Chike Olisah

Chike was a banker with over 11 years experience in retail and commercial banking, risk management, treasury portfolio management and relationship management. He also acquired some experience in financial management and do have some special interest in investment analysis and personal finance. He had stints with financial institutions like the former Intercontinental Bank and Fidelity Bank.

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