Naira on Gaining Streaks in Parallel Market as Banks Raise Supply
The Nigerian local currency, naira, continue gaining streaks in the parallel segment of the foreign exchange market on Monday, though close flattish at the official foreign exchange window.
Naira falls to N530-535 today as Nigerian banks informed customers about an increase in monthly dollar spending, up 100 per cent per customer, according to emails sent to customers.
The increased signal improved dollar supply in circulation, propelled by the Central Bank. On Monday, Nigeria’s external reserves printed at $41.5 billion, as the Central Bank increase participation in the investors and exporters window, accounted for more than 40% of dollar transacted at the window last week.
With the pattern seen in the FX markets, it appears at the N415 to a dollar, the official exchange rate has found a new fix when looking at persistent positioning at the range of N414 to N415 at the investors’ window.
But there are indications that Naira would gain big against the dollar in the parallel market, according to sources. Some analysts told MarketForces Africa that the local currency could be exchanged at N500 for a greenback in 2021 if the CBN keeps at the momentum.
While dollar supply at the investors and exporters window still trend below the pre-pandemic levels, there has been an upsurge in recent times – and CBN appears to be playing strong.
On Monday, at the Investors and Exporters foreign exchange (FX) market, Naira remained unchanged at ₦415.10 as FSDH Capital hinted in a report that most participants maintained bids between ₦404.57 and ₦444.00 per dollar.
The local currency had gained 7% in the unofficial market in the past weeks, closed in the parallel market at N540 on Friday from N580 levels. Naira faced strong pressures after the Central Bank stopped weekly dollar supply to bureau de change in July 2021. Though, the apex bank maintained that parallel rates cannot be used to appraise the performance of the local currency.
In their separate reports on the foreign exchange markets, Nigerian investment banking experts have the bias that parallel market rates remains the closest to the real exchange rate. A slew of investment analysts is projecting that naira would retain strength against the United States dollar in the parallel market, according to sources that spoke with MarketForces Africa on Monday.
“CBN will be playing strong in the foreign currencies market and the apex bank is expected to unveil plans at the monetary policy committee meeting scheduled for Monday and Tuesday next week”, an investment banker who preferred to remain anonymous said.
Nigerian retail depositors can now access a minimum of $200 per month at the official exchange rate, local banks said in email sent to customers. It is not clear at the time of writing how much businesses can access.
However, the new dollar spending raise happens to be at a higher level seen in two years amidst dollar scarcity. Analysts attribute the increased supply to strong accretion into the nation’s external reserve – nearing $42 billion or more than year imports.
Despite the turn of an event on the currency, some analysts pitched that CBN would need to do the needful to allow a foreign exchange rate that is close to the real effective exchange rate (REER).
Naira appears to have found a new level in the investors and exporters window where it traded flattish on Monday at N415.05 to a dollar.
The high spread between official and parallel market rates raised arbitrage activities in the FX markets. Speculative activities had come heavy and plunged naira valuation near N600 in July.
The volume of dollars transacted in the investors and exporters’ window (NAFEX turnover) amounted to US$3.9 billion in October, Coronation Research said, citing data from FMDQ.
Analysts noted that total inflow into the window was $1.9 billion with the Central Bank accounting for 41.9%, while the non-bank corporates accounted for 21.6%. Moves by local banks to increase monthly supply per customers signals there is an improvement in dollar supply into the economy. # Naira on Gaining Streaks in Parallel Market as Banks Raise Supply
