Naira Sinks over Near Zero FX Market Intervention
The Nigerian local currency, the naira, was knocked down against the overweight US dollar at the foreign exchange market over near zero market intervention by the Central Bank despite rising year-end import demand.
Data from the FMDQ platform showed that the Naira depreciated by 8.26% against the US Dollar in the Nigeria Autonomous Foreign Exchange Market (NAFEM) Window, closing at N881.88 per greenback.
Despite efforts, there is an acute shortage of foreign currency in the economy. In spite of that, demand for foreign currency payments continues to increase. The apex bank has distanced itself from participation in the official market. Near zero market intervention has kept the local currency on a tightrope.
For five consecutive weeks, the Central Bank of Nigeria (CBN) has left forces of demand of supply to determine the exchange rate for importers, manufacturers and other market players at the official window.
Analysts suggest that the move to halt forex market intervention was supported by the monetary policy authority’s decision to clear FX backlog.
The apex bank chief said at a conference that there have been improvements in FX liquidity in the market. However, the exchange rate trend showed this is merely a political statement at best.
“…market responded positively to tranche payments which have been made to 31 banks to clear the backlog of FX forward obligations”, Yemi Cardoso, Governor of Central Bank told a conference.
Naira crossed many red lines in the latter part of the year due to an imbalance between demand and supply, forcing the market to price down the local currency. Naira Steadies as Banks Issue Update on FX Purchase
Now, the Central Bank is planning new foreign exchange guidelines and legislation. CBN Governor said this new law will be developed, and extensive consultations will be conducted with banks and FX market operators before implementing any new requirements.