June 7, 2024

Central News

at the center of it

Naira pressure cools as CBN strives to boost $ supply

Pressure on the naira in the parallel segment of the foreign exchange market cooled off somewhat as week began on a blistering note, with the the Central Bank of Nigeria (CBN) announcing plans to boost dollar supply in the coming weeks.

Some dealers told a BusinessDay reporter that availability of the dollar in banks, due to increased supply by the CBN, had 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 (Monday) 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 had 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 per cent week-on-week at the Investors & Exporters (I&E) window to close at N740.6/$1, from its previous close of N743.1/$1. At the parallel market, it depreciated week-on-week as the market saw offer quotes in the range of N885/$1 – N940/$1. 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, the report said.

“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. [This is because] 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.

CBN strategists have been saying they do not believe that the current Naira freefall was caused by the market forces. Rather CBC says it is caused by speculators.

Folashodun Shonubi, acting CBN governor, said as much in a broadcast on Monday, where he stated that the government was ready to take action to save the Naira: “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 (Mr. President) 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’ve 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,” the CBN interim helmsman had also said.

“I do not believe that the changes going on in the parallel market are driven by pure economics of 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’re doing when they come to fruition may result in significant losses to them.”

The CBN has also been saying that it is optimistic about a turn-around in the FX situation in the country, as it reported an inflow of $1.41 billion for the month of June only, a figure that most likely would have risen in the month of July following savings from the expensive fuel subsidy removal and increased crude oil exports.

“This week, we expect continued pressure on the Naira across all market segments, given that FX pressures will persist as dollar earnings remain weak, and demand for dollars outweighs supply,” United Capital research analysts said.