CBN Withdraws FX Market Intervention for 6-Week
Exchange rates across FX markets have been left to forces of demand and supply for six weeks since the Central Bank of Nigeria (CBN) stopped its market intervention. The move has been noted to be a deliberate effort by the monetary authority to obtain a market clearing rate.
This is coming after the apex bank devalued the local currency in June 2023 which failed to achieve results. The exchange rates gap had crossed 30% as both the official and black markets tumbled.
This has reduced the gap between official and parallel market rates as FX users weigh access and FX rates. Hence, the naira has struggled to maintain balance, but analysts are expecting FX demand and supply to reduce gap between rates in the official and black.
Naira may be facing a bleak outlook, which could see the official rate at above N1,000 in the first quarter of 2024, some analysts said, noting that Nigeria has to have a sufficient buffer to remove hands in FX market.
On the other hand, Broadstreet analysts projected an increase in foreign currency inflows into Nigeria in December on an expected surge in remittance.
“If seasonality were anything to go by, December is supposed to provide a big opportunity for naira to stabilise and rerate as more US dollar flows in”, FX research analysts at LSintelligence said.
Last week, the Nigeria Autonomous Foreign Exchange Market (NAFEM) rate traded within the range of N700-N1,160 but closed at N927.2 per US dollar, Coronation Research said in a Tuesday note.
Analysts said this points towards a depreciation of -16.6% or N132.2 over a week. In the forwards market, fx traded within the range of N790-N1105.9.
In the 1-month contract, fx appreciated by +3.9% to close at N875.8, and in the 3-month contract, fx appreciated by +5.4% to close at N890.3. In the parallel market, the Naira hovered at an average of N1,165.
FX rates records showed that the current gap between the NAFEM and the parallel market rate settled at 20.4%. According to data from FMDQ, NAFEM turnover increased by +13.0% or USD97.6m week on week to USD597.0 million on Friday.
The NAFEM window recorded an inflow of USD33.1 million, Coronation Research said in its recent update. Analysts maintained that there were no injections made by the CBN for the sixth consecutive week. Nigeria Eurobond Slumps after CBN Resumes OMO Auction
According to Coronation Research, foreign portfolio investors (FPIs) accounted for 1.4% of inflow into the window, non-bank corporates accounted for 50%, exporters accounted for 34.5%, and others accounted for 14.1%.