Naira Dips 6% despite $53 Million FX Sales to Banks
The naira lost about 6% of its purchasing power in the official foreign exchange (FX) market last week as FX sales to authorised dealer banks was insufficient to reduce volatility.
At the Nigerian autonomous forex market (NAFEM) window, the naira depreciated by 5.87% week on week to ₦1,631.21 per US dollar, data from the FMDQ platform confirmed. Exchange rate weakened despite a $53 million FX intervention by the Central Bank of Nigeria (CBN) to boost US dollar volume in the official market last week.
During the week, the CBN announced the introduction of an Electronic Foreign Exchange Matching System (EFEMS) to enhance governance and transparency and enable a market-driven exchange rate. Analysts said the latest move to automate the foreign exchange market transactions is a right step toward curbing excessive speculation.
The development, according to financial experts who spoke with MarketForces Africa will reduce crosswind facing the local currency with possibility of removing currency plays in the forex market.
The CBN revealed plan to automate foreign currency trades from December, ditching a nearly decade-old over-the-counter trading system in a bid to enhance transparency and remove market distortions.
The Apex Bank said the new system would “facilitate a market-driven exchange rate accessible to the public”. It also released new guidelines for players in the foreign exchange market.
“This development is expected to reduce speculative activities, eliminate market distortions and give the CBN improved oversight,” the bank said in a circular dated Oct. 2.
The CBN said a two-week test run would be carried out in November, without specifying the exact dates. The transition comes against the backdrop of currency controls put in place by Nigeria in 2017 during the height of its economic crisis.
With a plan to increase market transparency with the new system, the CBN said it would publish real-time prices and buy/sell orders data. In the week, Nigeria’s FX reserves recorded accretion for the fifth consecutive week, increasing by USD517.01 million to USD38.58 billion.
In the forwards market, the naira rates for a one month forward contract dipped by -0.3% to N1,689.10, and a 3-month contract fell by 0.7% to N1,770.68, according to Cordros Capital Limited. Also, 6-month forward contract declined by -1.1% to N1,870.30, while 1-year contract depreciated by -2.1% to N2,095.43.
Elsewhere, Oil prices surged to their highest in two years following President Joe Biden’s comments about potential Israeli strikes on Iran’s crude facilities in response to Tehran’s missile attack.
Brent crude rose by 9.47% to $79.19 per barrel, while WTI climbed 10.15% to $75.51 per barrel. Meanwhile, gold prices dropped by 18 bps to $2,669.40 per ounce, as a stronger-than-expected U.S. jobs report boosted the dollar, tempering expectations for a Federal Reserve rate cut.
# Naira Dips 6% despite $53 Million FX Sales to Banks
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