Naira Falls To Another Record-Low Despite Huge Increase In Dollar Supply

Forex turnover improved significantly by 526%, as Nigeria’s exchange rate at the NAFEX window appreciated against the dollar to close at N385.50/$1 during intra-day trading on Thursday, November 19.

Also, the naira hit another new low as it depreciated against the dollar, closing at N480/$1 at the parallel market on Thursday, November 19, 2020, as dollar demand by manufacturers and traders grows faster than expected.

This is despite the allocation of about $1 billion to Bureau De Change (BDC) Operators since September by the CBN.

Parallel market: According to information from Abokifx – a prominent FX tracking website, at the black market where forex is traded unofficially, the Naira depreciated against the dollar to close at N480/$1 on Wednesday.

This represents a N2 drop when compared to the N478/$1 that it exchanged for on Wednesday, November 18.

• The local currency had strengthened by about 7.8% within one week in September at the black market, as the CBN introduced some measures targeted at exporters and importers.
• This is to boost the supply of dollars in the foreign exchange market and reduce the high demand for forex by traders.
• The CBN has sold about $1 billion to BDCs since they resumed forex sales on Monday, September 7, 2020.
• This was expected to inject more liquidity to the retail end of the foreign exchange market and discourage hoarding and speculation.
• However, the exchange rate against the dollar has remained volatile after the initial gains made, following the CBN’s resumption of sales of dollars to the BDCs.
• The President of the Association of Bureau De Change Operators, Aminu Gwadebe, said he expects the impact of the extra liquidity in the market to be gradual.
• Despite the drop in speculative buying of foreign exchange, the huge demand backlog by manufacturers and foreign investors still puts pressure and creates a volatile situation in the foreign exchange market.

NAFEX: The Naira appreciated against the dollar at the Investors and Exporters (I&E) window on Thursday, closing at N385.50/$1.

• This represents a 50 kobo gain when compared to the N386/$1 that it exchanged for on Wednesday, November 18.
• The opening indicative rate was N385.93 to a dollar on Thursday. This also represents an 8 kobo drop when compared to the N385.85 that was recorded on Wednesday.
• The N393.43 to a dollar was the highest rate during intra-day trading before it still closed at N386 to a dollar. It also sold for as low as N380/$1 during intra-day trading.
• Forex turnover: Forex turnover at the Investor and Exporters (I&E) window increased by 526% on Thursday, November 19, 2020.
• According to the data tracked by Nairametrics from FMDQ, forex turnover rose from $32.88 million on Wednesday, November 18, 2020, to $205.84 million on Thursday, November 19, 2020.
• The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds.
• The huge increase in dollar supply after days of decline reinforces the volatility of the foreign exchange market. The supply of dollars has been on a decline for months due to low oil prices and the absence of foreign capital inflow into the country.
• The average daily forex sale for last week was about $169.93 million, which represents a huge increase from the $34.5 million that was recorded the previous week.