Nigeria’s exchange rate at the NAFEX window remained stable to close at N386/$1 during intraday trading on Friday, September 25.
Also, the naira remained stable for second consecutive day, closing at N467/$1 at the parallel market on Friday, September 25, 2020, as the naira could weaken further at the black market following cut in interest by CBN.
Parallel market: At the black market where forex is traded unofficially, the Naira remained stable against the dollar to close at N467/$1 on Friday, according to information from Abokifx, a prominent FX tracking website. This was the same rate that it was exchanged for on Thursday, September 24.
The local currency has strengthened by about 7.8% within the last one week at the black market, as the CBN 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 $200 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, appeared to hoard forex, as they anticipated further depreciation in the market.
There has been a 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.
Forex turnover: Forex turnover at the Investor and Exporters (I&E) window, declined by 13.4% on Friday, September 25, 2020.
According to the data tracked by Nairametrics from FMDQ, forex turnover dropped from $98.65 million on Thursday, September 24, 2020, to $85.43 million on Friday, September 25, 2020.
The CBN had in the past few weeks moved to clear the huge backlog of foreign exchange demand, especially by foreign investors wishing to repatriate back their funds.
The drop in forex supply 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 $169..93 million, which represents a huge increase from the $34.5 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.
According to Reuters, the naira could weaken at the black market this coming following the cut of interest rate by the CBN after the MPC meeting to boost credit as it works to stimulate the Nigerian economy that is heading towards a recession.