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Exchange rate stabilizes as CBN investigates over 100 companies for forex abuse

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Nigeria’s exchange rate at the NAFEX window continued to remain stable for the sixth consecutive trading day to still close at N386/$1 during intraday trading on Monday, September 21.

Similarly, the naira remained stable closing at N465/$1 at the parallel market as BDC operators still await another round of forex allocation. This is as the Central Bank of Nigeria (CBN) investigates more companies over suspected forex abuse.

Parallel Market: At the black market where forex is traded unofficially, the Naira remained stable against the dollar to close at N465/$1 on Monday, according to information from Abokifx, a prominent FX tracking website. This was the same rate that it exchanged on Friday, September 18.

Currency Developments

  • The local currency has strengthened by about 7.8% within the last one week at the black market, as the Central Bank of Nigeria introduced some measures targeted at exporters and importers in order to try to boost the supply of dollars in the foreign exchange market and reduce the high demand for forex by traders.
  • The CBN has sold over $150 million to BDCs since the resumed forex sales on Monday, September 7, 2020. This was expected to inject more liquidity to the retail end of the foreign exchange market and discourage hoarding and speculation.
  • However, the exchange rate against the dollar has failed to sustain the initial gains made after the CBN announced plans to provide liquidity.
  • BDC operators have urged the apex bank to reconsider the margin allowed for the currency traders as it was inadequate to meet their expenses.
  • We also noted that forex traders monitored during the previous week appear to hoard forex as they anticipated further depreciation in the market.
  • There has been a sharp drop in speculative buying of foreign exchange, although demand backlog by manufacturers and foreign investors still puts pressure and creates a volatile situation in the foreign exchange market.
  • NAFEX: The Naira still remained stable against the dollar at the Investors and Exporters (I&E) window on Monday, closing at N386/$1.
    • This was exactly the same rate that it exchanged for on Friday, September 18.
    • The opening indicative rate was N386.15 to a dollar on Monday. This represents a 22 kobo gain when compared to the N386.37 to a dollar that was recorded on Friday.
    • The N392.62 to a dollar is the highest rate during intraday trading before closing at the rate of N386/$1. It also sold for as low as N383/$1 during intraday trading.
    • Forex Turnover: Forex turnover at the Investor and Exporters (I&E) window declined by 18.2% on Monday, September 21, 2020.

      • According to the data tracked by Nairametrics from FMDQ, forex turnover dropped from $83.35 million on Friday, September 18, 2020, to $68.14 million on Monday, September 21, 2020.
      • The slightly higher forex supplies at the NAFEX window CBN’s move to clear the huge backlog of foreign exchange demand, especially by foreign investors wishing to repatriate back their funds.
      • The drop in forex supply reinforces the volatility of the foreign exchange market. The supply of dollars has been on a decline for months due to low oil prices and the absence of foreign capital inflow into the country.
      • The average daily forex sale for last week was about $34.5 million which represents a drop from the $58.52 million that was recorded the previous week.
      • Total forex trading at the NAFEX window in the month of August was about $857 million compared to $937 million in July.
      • Meanwhile, according to media reports, the apex bank is currently investigating all the accounts of over 100 companies over alleged forex abuse, who specialize in buying foreign exchange from unauthorized sources without going through legitimate sources, thereby avoiding documentation and overheating exchange rates.
Lady Decency
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