Naira depreciates as dollar sales top $100m a day at I&E window

The exchange rate at the parallel market remained stable closing at N470/$1 on Thursday, July 16, 2020. However, on the officially recognized NAFEX market, the forex turnover rose sharply by about 446% while the exchange rate depreciated further closing at N388/$1.        

Parallel Market: At the black market where forex is traded unofficially, the Naira remained stable closing at N470 to a dollar on Thursday, according to information from Aboki FX a prominent FX tracking website. This is the same rate that it exchanged on Wednesday. Also, during intraday trading, Nairametrics research observed the dollar sold for N470/$ throughout the day. Nairametrics FX tracker also reported a parallel market FX rate of N470/$1.   

NAFEX:  The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Thursday by N1.50, closing at N388/$1, compared with the N386.50 that was reported on Wednesday, July 15. The opening indicative rate was N387.96to a dollar on Thursday. This represents a 21kobo drop when compared to the N387.75 to a dollar that was recorded on Tuesday.      

Nigeria maintains multiple exchange rates comprising the CBN official rate, the BDC rates, SMIS, and the NAFEX (I&E window). Nairametrics reported a few weeks ago that the government has set plans in motion to unify the multiple exchange rate in line with requirements from the World Bank. Nigeria is seeking a world bank loan of up to $3 billion. The country has been under pressure from the International Monetary Fund and the World Bank for currency reforms.      

Forex Turnover          

Meanwhile, forex turnover at the Investor and Exporters (I&E) window recorded a massive increase on Thursday, July 16, 2020, as it rose by about 446% day on day. According to the data tracked by Nairametrics, forex turnover rose from $18.71million on Wednesday, July 15, 2020, to $102.13million on Thursday, July 16, 2020. Although there was a huge improvement in forex liquidity, the pressure and uncertainty in the foreign exchange market still persists as is reflected in the fall in exchange rate. The turnover also falls short of $200 million recorded at major trading days during the last few weeks.        

Rate Adjustment        

Nairametrics reported last week that the CBN official rate has been adjusted from N360 to a dollar to N381 at its SMIS window where forex is sold to importers and SME’s. A note from Renaissance capital suggests that the naira might be depreciated again at the official window if the parallel market or unofficial rate continues to weaken further. As long as there are restrictions on access to dollars, businesses will continue to patronize the unofficial market to meet up with their demands.    

Forex News: On Monday, the Central Bank of Nigeria (CBN) directed all authorised dealers to immediately  discontinue the processing of Forms M for maize/corn importation into the country. This directive is contained in a notice that was addressed to authorised dealers and signed by Dr O.S Nnaji, CBN’s Director in charge of Trade and Exchange Department.  

According to a recent report from FSDH research, the forex inflows into the I&E window reduced significantly in the second quarter of 2020 on the back of lower foreign portfolio inflows.  

The attendant effect of covid-19 on oil price has constrained the capacity of the Central Bank of Nigeria to intervene further in the forex market as dollar inflow continues to dwindle despite rising demand.  



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