•Analysts worry as supply volume drops by 21%
By Chinwendu Obienyi
Amid demand pressure as well as supply gap challenges in FX, the volume of dollars traded at the Investors and Exporters (I&E) window of the FX market dropped from $2.64 billion in June to $1.6 billion in July, representing a 21 per cent decline in one month.
Data obtained from the FMDQ’s website on Wednesday, revealed that turnover volume as at the first week in July stood at $417.33 million and dropped further down to $390.59 million.
However, in the third week, turnover increased by 6.05 pe rcent to $414.24 million but declined by 4.13 per cent to $397.11 million in the fourth week. The last week saw volumes of traded dollars standing at $67.21 million.
Meanwhile, the Naira appreciated by N12.31 to N756.9 per dollar in the I&E window at the end of July 2023 from N769.25 per dollar traded on June 30th, 2023. However, the Naira depreciated by N105 in the parallel market. Daily Sun gathered that the exchange rate for the parallel market rose to N870 per dollar at the end of July from N765 per dollar on June 30th, 2023.
The sharp 21 per cent decline in turnover in the I&E window, according to economic analysts, points to the fact that the FX reforms introduced by the Central Bank of Nigeria, (CBN) in June is yet to translate into increased foreign exchange inflow into the country.
According to analysts at Cordros Research, local currencies remained pressured partly due to the low export earnings induced by the global slowdown, high imports exacerbated by the Russia-Ukraine conflict, tighter global monetary policies, higher inflationary pressures and large fiscal deficits.
They further added that the currency is under-valued given the steep depreciation accompanying the CBN’s FX liberalisation.
They said, “Accordingly, we think that the Naira has a fair chance of appreciating from current levels if the short term market rates increase significantly from current levels, CBN clear its FX backlogs and how quick foreign investors can repatriate their capital”.
It will be recalled that the Acting CBN Governor, Folashodun Shonubi, at its MPC meeting, had assured that the prevailing volatility of exchange rate in the I&E window will soon be a thing of the past, adding that the apex bank will continue to intervene in the market to ensure stability.
He further explained that the apex bank was not trying to unify rates but encourage the markets to be more efficient and to be more effective which takes a bit of time. According to him, some of the volatility seen in the FX market is due to the pent-up demand.
“Some of the volatility you have seen over the period has been driven by that same fact that the market needs to find its level and also the reality that there is a pent up demand which current supply may not be sufficient for and as we ease and satisfy the pent up demand we will begin to see more efficient markets that runs.
So we expect that over time, sooner rather than later. The volatility will normalize. The role of the central bank is to intervene and keep the market at a fairly stable level. We have our views as to what that level is and as the market continues to oscillate around that level, if there is a need for us to intervene either by buying or selling, that is the role of the Central bank”, Shonubi said.