Based on the half-year financial markets report of the Central Bank of Nigeria, the apex bank has maintained its intervention in the foreign exchange market in an attempt to alleviate demand pressures and ensure exchange rate stability.
A total of US$6,439.33 million (US$9,229.26 million in H1 2022) was sold at the foreign exchange market made up of spot sales of US$1,557.47 million (US$4,389.92 million in H1 2022) and forward sales of US$4,881.86 million (US$4,839.35 million in H1 2022).
The spot sales comprised US$612.41 million sold at the inter-bank Secondary Market Intervention Sales (SMIS)
window, US$455.31 million sold to Small and Medium Enterprises (SMEs), US$441.75 million for Invisibles, and US$48.00 million sold at the I&E window while the bank purchased a total of US$655.53 million in the FX market.
Since the unification of all the official foreign exchange (FX) windows, the Naira has continued to depreciate against the US dollar, down by 39.6% to N765.83/$ as of 10 October 2023 from N462.88/$ (price prior to the new policy) at the I&E Window.
However, the shocks of the policy have been more pronounced at the parallel market leading to a steep depreciation of the Naira to N1020/US$ on 10 October 2023.
With little control over the depreciation of the nation’s currency, the then acting governor of the Central Bank of Nigeria (CBN), Mr. Fola Shonubi, announced plans to put in place new policies that would guide the dealings of FX to boost supply in the market.
Apparently, the measures put in place have not been effective as demand for FX continues to rise amidst an acute shortage of supply.
We have always argued that while we believe the unification of the various FX rates is a pro-market policy that will be positive for the economy in the long term, the short to medium-term impact will be hard too hard on the average consumer.
A focus on rate convergence without structural reforms to increase the supply of FX will be a case of treating the symptoms while ignoring the underlying cause of the problem which is an acute shortage of supply amidst a growing demand for FX.
Crude oil sales and Foreign Portfolio Investments (FPIs) are two major sources of FX that have declined significantly.
Oil production remains depressed, reported at 1.57 mbpd in September (highest so far this year) and we are yet to see any significant foreign capital inflows
