The pressure on the naira in the parallel segment of the foreign exchange market cooled on Monday as the Central Bank of Nigeria (CBN) announced plans to boost dollar supply in coming weeks.
Some dealers told journalists that the availability of dollars in banks, due to increased supply by the CBN has helped more lenders accommodate genuine FX demands that would have found their way into the unofficial/parallel market.
“It has not increased so much between last Friday and this morning. I feel the banks are getting more dollars from the CBN to meet genuine demands. Those demands that found their way into the parallel market have reduced because more banks have dollars to meet customers demands. It is a willing buyer and willing seller market. Dollar is still cheaper in the I&E window,” an FX dealer said.
The dollar has remained flat at the parallel market since Friday, closing at N945/$ on Monday, according to data by AbokiFX, an online platform that tracks the exchange rate on the parallel market.
“I would not necessarily say there is stability in the parallel market yet, even so the demand/supply dynamics has pushed the exchange rate beyond my expectation of upper N800 levels,” Abiola Rasaq, former economist and head of investor relations at United Bank for Africa Plc, said.
“That said, we are at the tail end of the seasonal FX demand cycle and any positive news of FX inflow or improvement in autonomous FX supplies should begin to strengthen the naira and moderate the speculative pressures,” Rasaq said.
Last week, the naira appreciated by 0.33 percent week-on-week at the Investors & Exporters (I&E) window to close at N740.6/$, from its previous close of N743.1/$. At the parallel market, it depreciated week-on-week as the market saw offer quotes in the range of N885/$- N940/$. Activities in the I&E window had weakened as average FX turnover fell last week by 14.2 percent to settle at $78.1 million. Nigeria’s external reserves fell by 0.14 percent to settle at $33.1 billion.
“Yes, news of FX inflows is helpful and such news would continue to help strengthen the fundamentals of the naira, especially as the CBN audited accounts send negative sentiments to the market about the veracity or reality of the reported foreign reserves,” Rasaq added.
He said more importantly, “the government needs to follow through, and indeed, very quickly with relevant reforms that can potentially shift the FX demand/supply balance.”
He said, “The liberalisation of the market is great and I believe the government does not only mean well with this tough decision but also made the right call.
“Albeit the liberalisation of the FX market on its own does not solve the problem, and this is why it is important for the executive cabinet to be formed as soon as possible and the ministers have lots of work to do in sponsoring key reforms across several sectors in a coordinated manner that can spur local productivity and economic progress, capable of not only improving the local aggregate demand and supplies dynamics but also shift the balance of trade as well as current account balances. It is equally important to get on board a substantive CBN governor as soon as possible and ensure effective coordination and collaboration of monetary and fiscal reforms/policies.”
The CBN has said it does not believe that the current naira freefall is caused by the market forces. Rather it says it is caused by speculators.
The Acting CBN Governor, Folashodun Shonubi said this in a broadcast Monday, adding that the government was ready to take action to save the naira.
Shonubi said, “The President is very concerned about some of the goings-on in the foreign exchange market. One of the things we discussed was what could be done to stabilise and what could be done to improve the liquidity in the market and also the goings-on in the various other markets including the parallel market.
“He is concerned about the impact on the average person. The things that you do which are purely local are still referenced to exchange rate in the parallel market. We have discussed and I have shared with him what we are doing to improve supply. If you look at the official market, you will find out that the market has been fairly stable and the spread of the difference has not fluctuated as much.
“I do not believe that the changes going on in the parallel market are driven by pure economics demand and supply, but are topped by speculative demand by people.
“Some of the plans and strategies which I’m not at liberty to share with you, means sooner rather than later, the speculators should be careful, because we believe the things we are doing when they come to fruition may result in significant losses to them.”
He said the President is concerned about the freefall but he has been briefed about the CBN’s moves to save the naira.
He said the impact of CBN’s moves will be seen in the market in a few days and that the apex bank will ensure the FX environment operates at a level that is more efficient.
The central bank had recently blamed the decline in the value of the naira against the dollar on current unofficial remittances from the diaspora.