The Central Bank of Nigeria (CBN) has returned to the foreign exchange market to provide FX liquidity in the face of ongoing US dollar shortage, a major concern in the currency markets.
According to experts in a market update, the central bank intervened three times last week, selling foreign currency to deposit money banks totaling around USD211.00 million.
The forex liquidity in the market increased compared to the previous week following the CBN’s new market intervention to prevent the naira from free plummeting.
Cordros Capital said in a note that the improvement was driven by FX supplies from the CBN to banks and marginally renewed interest from foreign portfolio investors (FPIs), which reduced naira volatility. Week after week, the naira fell 2% due to an imbalance between FX demand and supply.
“There is no short cut to it, the performance of the naira depends largely on the level foreign currency inflows available to meet payments. The demand and supply rule is definite on the matter”, LSintelligence Associates said.
Meanwhile, analysts at Cordros Capital Limited think that market liquidity may be insufficient to trigger a significant appreciation in the naira. The local currency has crossed old red lines before it retraced below N1500 on Friday, according to data from FMDQ.
Similarly, trading activity level in the Nigerian autonomous foreign exchange market increased by 40.1% to $1.3 billion, according to Afrinvest Limited. This happened following three times fx market intervention conducted by the apex.
“Without that intervention in the currency market, exchange rate would have worsened significantly as demand side remains upbeat”, analysts at LSintelligence Associates told MarketForces Africa.
In the currency market, the Naira weakened 2.1% against the base currency, US dollar to ₦1,497.33. Similarly, at the parallel market, the Naira faltered 3.4% to close at ₦1,475. Afrinvest anticipates extended pressure on the Naira as FX supply-demand mismatch persists.
In the forwards market, the naira recorded depreciated across one, three, six and twelve months contracts. Details from FX market showed that the 1-month fx forward contract fell by -2.8% to N1,520.16 per greenback.
The 3-month fx forward contract depreciated by -2.4% to N1,567.97, traders said in a market update. The 6-month fx forward contract dipped -1.9% to N1,631.82 while 1-year contract dropped by -1.9% to N1,767.52.
