CBN Exposes Dollar Accounts to Exchange Rate Risks
The Central Bank of Nigeria’s (CBN) effort to realise the naira’s true value across the foreign exchange market has pitched dollar accounts against exchange rate risks.
The naira has seen successive gains, and with rising external reserves, analysts said it is unlikely that the local currency will be become worse off versus the dollar in the currency market.Â
“With the Yemi Cardoso-led Central Bank maintaining its stance on FX intervention, keeping the US dollar that are unavailable for spending has become a risky adventure in Nigeria,” a Broadstreet banker told MarketForces Africa in a chat.
The Apex Bank appears to have set a target trade range for the naira, and the authority has continued to follow through, intervening when it becomes necessary, based on its market intervention record.
The naira, at the moment, is thriving as foreign investors’ confidence has improved significantly since the country’s launched FX reform.
The Central Bank has built capacity to fund foreign investors who choose to upstream dollars abroad, reversing capital flow restrictions under the previous administration.
So, far the spread between the official and parallel market has declined, and possibility of exchange rates unification isn’t absolutely impossible.
Last week, the Naira sustained its positive momentum, recording a modest appreciation against the US dollar at the official window, where it strengthened by 0.91% to close at N1,487.90/US$1, representing a week-on-week gain of N13.60.
The local currency appreciation translates to huge loss for dollar account holders or other speculative FX transactions – and analysts said the pattern may persist throughout the year.
This performance was largely underpinned by sustained Central Bank interventions and steady foreign portfolio inflows. The CBN pumped $150 million into the forex market and caused naira rallies at the official and parallel markets.
In the parallel market, the Naira closed stronger, appreciating by 0.66% week on week to settle at N1,520/US$1. Total FX inflows into the FX window increased to US$605.00 million, up from US$550.90 million the preceding week.
Foreign Portfolio Investments (FPIs) accounted for the largest share at US$251.70 million, Coronation Merchant Bank research unit said in a note, which was 41.60% of the dollar volume available at the supply side.
Also, inflows from exporters account for 19.72% of the aggregate inflows, non-bank corporates at 13.33% Foreign Direct Investments (FDI) at 8.94%, and the CBN at 6.10%, while other sources contributed 10.32%.
According to CBN data, gross external reserves posted a marginal increase of 0.72%, adding US$229.67m to settle at US$42.00 billion.
According to Coronation Research, the naira is expected to trade within a relatively stable band in the coming week, with scope for mild appreciation if foreign portfolio inflows and liquidity support remain sustained. Access Holdings Slides Ahead of Anticipated Earnings Release
