Foreign Exchange Inflows into IEW Drops Strongly in Q2
Foreign exchange accretion into the Importers and Exporters Window (IEW) went southward in the second quarter of 2020.
Analysts said this reduced the Central Bank of Nigeria’s ability to defend the local currency, Naira, thus force official rate adjustment.
Following the outbreak of COVID-19, inflows into IEW reduced significantly due to lower foreign Portfolio inflows (FPI).
FPI inflow declined to US$27.2 million in June 2020 from US$2.04 billion in January 2020.
On a quarterly basis, inflows declined from US$3.65 billion in the first quarter of 2020 to US$225.7 million in the second quarter of 2020.
The CBN intervention increased from US$390 million in January 2020 to US$2.48 billion and US$2.89 billion in February and March respectively.
FSDH said the attendant effect of COVID-19 on oil price constrained the CBN’s capacity to intervene further as dollar inflow dwindled in April.
Following the lockdown and restriction of economic activities in April and May, total inflows to the IEW dropped.
It dropped from US$3.7 billion in March to US$459.2 million in April, US$492 million in May 2020.
FX Inflows dipped further to US$248 million in June 2020, Q1:2020 was US$11.92 billion against Q2:2020 of US$1.2 billion.
In early July, the CBN adjusted exchange rate in the Secondary Market Intervention Sales (SMIS) – a window where importers access foreign currencies – from ₦360/$1 to ₦380/$1.
FSDH explained that from mid-March the exchange rate faced significant pressure in the IEW.
“This pressure stemmed from declining external reserves and falling crude oil prices. The Naira fell from ₦367/US$ in early March to ₦401.6 in mid-April”, FSDH stated.
Meanwhile, as oil prices increased in May following OPEC cuts and higher crude oil demand, external reserve situation also improved.
In addition, the Nigerian government’s ability to secure US$3.4 billion loan from the IMF also contributed to the improvement in the reserves position.
In the month of June, external reserves maintained a stable trend as crude oil price stabilized.
Reserves stood at US$36.19 billion as at June 30, 2020 with a year to date of decline of 6.24%.
FX inflows into IEW drops in Q2, Limit CBN’s Intervention