As the United States (U.S.) dollar continues to be scarce, the naira weakens on all major foreign exchange exchanges. Due to a lack of supply, May 2023 saw a more than 9% fall in the volume of US dollars transacted at the Investors, Exporters window.
According to analysts, the lack of interest from international investors contributed to the local economy’s hard currency illiquidity, which had a detrimental effect on the exchange rate. The Naira plunged substantially at the official window by 0.84 to end the week at 464.51 to the US dollar.
Despite the CBN’s sales at its foreign currency auction last week, exchange rates have mainly struggled as a result of the imbalance between market supply and demand for foreign exchange. The aviation, agricultural, petroleum, and raw materials/machinery sub-sectors gain from the CBN FX auction. This covers reimbursement for both personal and business travel, which local banks cut by 50% to $2,000 per eligible user.
Analysts noted that there has been increased involvement while stating that only exporters who sell their revenues through the window are eligible to acquire foreign currency via the CBN market intervention.
To reassure all foreign exchange users of the apex bank’s intention to continue to service all genuine FX demand, the apex bank has significantly increased the amount of foreign currency it has injected into the market. The open or parallel market, where the US dollar and other foreign currencies are freely exchanged at uncontrolled spread prices, saw an increase in unmet FX demand last week.
The currency rate then declined to N778 per US dollar from N775 while the gross balance of the country’s foreign reserves showed a little decline to $35.2 billion. Nigeria’s foreign exchange reserves barely decreased.
The volume of US dollars transacted at the IEW window declined in May 2023 amidst a forex struggle. Activity level or FX turnover declined 9.3% in May 2023 to $649.1 billion from $716.0 billion in April, Afrinvest said in a market report.
The external reserves at the end of 2022 stood at US$36.61 billion, a level that covered 6.8 months of import for goods and services or 9.3 months of import for goods, above the international standard benchmark of 3 months of import cover. In the oil market this week, oil price movement rebounded in early trading on Friday but is somewhat on course for another week of price decline as it traded at $74.75 per barrel on Friday in the midst of debt talks in the United States and the surprise contraction in China’s manufacturing activities.