Naira Plunges on Suboptimal FX Intervention
The naira exchange rate suffered from a lack of FX liquidity at the Nigerian autonomous foreign exchange market this week. The exchange rate closed negative over subpar FX intervention in the official window despite weak US dollar volume to meet growing demand.
According to spot data tracked on the FMDQ platform, the naira depreciated to N1,652.62 per US dollar at the Nigerian Autonomous Foreign Exchange Market.
The decline in the value of the local currency at the forex markets happened despite FX sales to banks by the Central Bank of Nigeria (CBN), suggesting an entrenched FX liquidity shortage in the official window.
The CBN sold about USD 42.00 million to authorised dealer banks amidst a widening gap between foreign currency demand by eligible market players and tight US dollar supply.
FX intervention has been slowed down by the CBN as market hopes the automated FX trading platform scheduled to go live in December will increase transparency and boost liquidity.
The CBN has tried some alternative means of stabilising the naira but failed. In August, the Apex Bank re-introduced retail Dutch Auction System but has not come back to require bid submission since then.
Elsewhere, the country’s FX reserves maintained its growth trajectory, as the gross reserve level grew marginally by USD 2.24 million to USD 40.28 billion, relative to the 6-week average weekly addition of USD 257.91 million.
Total turnover at the Nigerian autonomous foreign exchange market decreased by 68.1% from the beginning of the week to USD518.32 million on Thursday, with trades consummated within the 1,601.50 – N1,705 band, Cordros Capital Limited said in a note
In the forwards market, the naira rates decreased across the 1-month contract by -0.2% to N1,741.12 per US dollar. Also, the 3-month forward FX contract dropped by -0.3% to N1,817.47, and the 6-month plunged by 0.2% to N1,927.93, while the 1-year lost 3.7% to N2,158.28.
Analysts said they expect the exchange rate to face upward pressure as overall market supply continues to fall short of total demand.
In the near term, the CBN is likely to sustain suboptimal FX interventions, limited by the weak net FX reserves, analysts said. #Naira Plunges on Suboptimal FX Intervention Naira Mixed as Markets Brace for $2.2bn External Borrowing
