CBN Begins FX Market Intervention, Sells Dollar to Banks
The Central Bank of Nigeria (CBN) has returned to the foreign exchange market to boost FX liquidity amidst perpetual US dollar scarcity, a key challenge in the currency market.
Last week, the apex bank intervened three times with total foreign currency sales of about USD211 million to deposit money banks, analysts said in a market update. Forex liquidity in the market improved compared to the previous week following the CBN fresh market intervention to halt the naira from free falling.
The improvement driven by FX supply from the CBN to banks and mildly rekindled interest from foreign portfolio investors (FPIs), stemmed the naira’s volatility, Cordros Capital said in a note. A mismatch between FX supply and demand caused the naira to lose 2% every week.
“There is no short cut to it, the performance of the naira depends largely on the level of foreign currency inflows available to meet payments. The demand and supply rule is definite on the matter,” LSintelligence Associates said.
Meanwhile, analysts at Cordros Capital Limited think that market liquidity may be insufficient to trigger a significant appreciation in the naira. The local currency crossed old red lines before it retraced below N1500 on Friday, according to data from FMDQ.
Similarly, trading activity levels in the Nigerian autonomous foreign exchange market increased by 40.1% to $1.3 billion, according to Afrinvest Limited. This occurred after the apex conducted three rounds of FX market intervention.
“Without that intervention in the currency market, exchange rate would have worsened significantly as the demand side remains upbeat,” analysts at LSintelligence Associates told MarketForces Africa.
In the currency market, the Naira weakened 2.1% against the base currency, US dollar to ₦1,497.33. Similarly, at the parallel market, the Naira faltered 3.4% to close at ₦1,475. Afrinvest anticipates extended pressure on the Naira as FX supply-demand mismatch persists.
In the forwards market, the naira recorded depreciated across one, three, six and twelve months contracts. Details from FX market showed that the 1-month fx forward contract fell by -2.8% to N1,520.16 per greenback.
The 3-month fx forward contract depreciated by -2.4% to N1,567.97, traders said in a market update. The 6-month fx forward contract dipped -1.9% to N1,631.82 while 1-year contract dropped by -1.9% to N1,767.52. #CBN Begins FX Market Intervention, Sells Dollar to Banks #FX Inflows Down 69% as Foreign Investors Pullback
