Naira Crashes against Dollar across FX Markets

CBN Orders Naira Be Sold At N392/$

Forex turnover at the Investor and Exporters (I&E) window on Thursday, June 25, 2020, dropped by 83.8%, a significant drop from the improved liquidity recorded throughout the week in the foreign exchange market. This is according to data from the FMDQOTC, an exchange where forex is traded by foreign investors and exporters.  

According to the data tracked by Nairametrics, forex turnover dropped from $90.88 million on Wednesday, June 24, 2020, to $14.68 million on Thursday, June 25, 2020, representing a decline of 83.8%, day on day. This is the lowest turnover in the I&E window since the beginning of the week. 

The volatility and uncertainty in the foreign exchange market seem to persist due to liquidity shortages across markets.  Liquidity remains quite tight in the foreign exchange market, with the average turnover in the I&E market significantly down to about $45.5 million in the month of May compared to $297.5 million that was recorded in January.  

Several reports tracked by Nairametrics indicate that the accumulated demand for forex in the market could be between $1.5 and $5 billion as supply shortages persist. Forex shortages have persisted since the crash in oil prices coincided with the global lockdown due to COVID-19. The rise in demand and contrasting drop in supply has called for another round of devaluation, which the CBN has insisted it has plans to implement. A devaluation last occurred in March. The activities of the speculators seem to have continued unabated. 

Speculators have thus patronized the parallel market, otherwise known as the black market, thereby widening the gap between it and the I&E window. The CBN maintains that the perceived demand cannot be substantiated as the lockdown induced by the COVID-19 pandemic suggest demand should be low due to travel restrictions and drop-in economic activities.  

Fridays decline in liquidity could further fuel speculations in the black market where the exchange rate has traded at a premium of N60 over the last few weeks. 

Exchange rate 

In related news, the exchange rate on the I&E window depreciated again marginally on Thursday, closing at N387.27 to a dollar, compared to the N386.17 to a dollar that was reported on Wednesday, June 24, representing a 10 kobo drop. The opening indicative rate was N387.08 to a dollar for Thursday. This represents a drop of 75 kobo when compared to the N386.33 opening rate recorded on Wednesday.  

At the black market where forex is traded unofficially, the naira depreciated by N2 to close at N457 to a dollar on Thursday, as against the N455 to a dollar on Wednesday. The rate at the start of the week was N455 to a dollar.  

Nigeria continues to maintain multiple exchange rates comprising the CBN official rate, the BDC rates, and the NAFEX (I&E window). Nairametrics reported last week that the government is mulling unifying the multiple exchange rates in a bid to increase the amount available for state governments to share.  

The CBN had announced its plans to increase the country’s external reserves which has been on a decline for about 2 weeks, in order to safeguard the value of the naira. They pointed out that they have also put in place some measures to curb the activities of currency speculators. 

The $3 billion which is sought from the World Bank will be a major boost to the country’s external reserve. The low oil prices and the subsequent pressure in the foreign exchange market have seen Nigeria’s external reserve decline by about $9 billion in the last one year.  

The CBN spokesperson, Isaac Okoroafor, in an interview, said that the apex bank will go against round-trippers, forex speculators and unscrupulous importers, whose activities put a lot of pressure on the naira.

Source: Nairametrics

About Author

Victor Okeh is a graduate of Economics from Lagos State University. He is versatile in reporting business and economy, politics and finance, and entrepreneurship articles. He can be reached via – [email protected]

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