Naira Rebounds as FX Supply Pressures Ease
Nigerian naira

Naira Rebounds as FX Supply Pressures Ease

Market participants at the investors’ and exporters’ foreign exchange window exchanged the United States (US) dollars at N757.51 as supply side pressure eased.  Data from FMDQ showed that the Naira on Tuesday appreciated against the US dollar, exchanging at N757.51 at the Investors and Exporters window.

According to traders’ notes, the Nigerian local currency gained by 2.23 per cent on Tuesday when compared with N774.78 which it was exchanged for the US dollar on Monday. FX rate movement at the official has been largely unstable.

The open indicative rate closed at N782.59 to the dollar on Tuesday, data from the over-the-counter forex market showed.  It was noted that a spot exchange rate of N799.90 to the greenback was the highest rate recorded within the day’s trading before it settled at N757.51.

The Naira sold for as low as N700 to the dollar within the day’s trading. On Tuesday, a total of 45.98 million dollars was traded at the investors and exporters window.

In July, the official market experienced fx supply pressures, thus delaying convergence with open market rates. The gap between official and parallel markets has crossed N100 as user logged higher demand in the open market.

FMDQ FX report for July showed that inflow into the Investors and Exporters window bumped by about 66%.

In its review, Cordros Capital Limited said FX inflows from local investors dipped by 60.6% to US$561.00 million in July from US$1.42 billion in June given the slowdown across the local segments.

It was noted that supply from the CBN fell 70.0% in the month, Individual supply was 51.2% below the record level seen in June and non-bank corporates were down by 65.6% while Exporters receipts declined 63.9%.

In the same vein, inflows from foreign sources remained underwhelming, decelerating by 86.5% in July to US$47.00 million from US$347.30 million recorded in June as foreign investors remained cautious about returning in their droves.

The Nigerian authorities have used FX and import restrictions extensively to manage external pressures in recent years, resulting in severe foreign currency (FCY) shortages plaguing the private sector.

In its update, Fitch Ratings said such shortages have delayed Nigerian banks sourcing foreign currency from the CBN on behalf of importing customers to meet their trade-finance obligations to correspondent banks.

This has led to significant delays in Nigerian banks providing foreign currency to international correspondent banks, the global rating agency said.  Nigerian banks have responded by encouraging customers to source forex themselves, and by utilising their own resources as an interim measure to close letters of credit pending the receipt of foreign currency from the CBN.

A market-determined exchange rate and the market-friendly reforms being pursued are both conducive to capital inflows. This should help to reduce FCY shortages and the difficulties banks and importers are experiencing in conducting trade-finance business. However, the extent and timing of such benefits remain to be seen. #Naira Rebounds as FX Supply Pressures Ease Naira Steadies as Banks Issue Update on FX Purchase