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Naira stable at N472/$1 in parallel market

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The exchange rate at the parallel market remained stable for the second consecutive day closing at N472/$1 on Wednesday, July 22, 2020. However, on the officially recognized NAFEX market, the forex turnover was down again by 59.1% while the exchange rate also remained stable closing at N388.17/$1.

Exchange Rates

Parallel Market: At the black market where forex is traded unofficially, the Naira remained stable closing at N472 to a dollar on Wednesday, according to information from FX tracker.

FT collates parallel market exchange rates as far back as 2017. The parallel market also caters to forex trades through wire transfers especially for buyers who cannot fulfill their dollar demands at the I&E window or the SMIS window. Exchange rate for wired transfer is often at a premium to the black market rate.

NAFEX:  The Naira also remained stable against the dollar at the Investors and Exporters (I&E) window on Wednesday, closing at N388.17/$1, this the same rate that was reported on Tuesday, July 21.  The opening indicative rate was N388.65 to a dollar on Wednesday. This represents a 15 kobo drop when compared to the N388.50 to a dollar that was recorded on Tuesday.

Exchange rate disparity: The exchange rate disparity between the official NAFEX rate and back market rate still remained widen on Wednesday and is still a whopping N84. Nigeria maintains multiple exchange rates comprising the CBN official rate, the BDC rates, SMIS, and the NAFEX (I&E window).

 

We reported a few weeks ago that the government had set plans in motion to unify the multiple exchange rate in line with requirements from the World Bank. Nigeria is seeking a world bank loan of up to $3 billion. The country has been under pressure from the International Monetary Fund and the World Bank for currency reforms.

Forex Turnover

Meanwhile, forex turnover at the Investor and Exporters (I&E) window recorded a further decline on Wednesday, July 22, 2020, as it dropped by 59.1% day on day. According to the data tracked, forex turnover decreased from $29.77 million on Tuesday, July 21, 2020, to $12.17 million on Wednesday, July 22, 2020.

 

Forex News

The forex turnover at the NAFEX window where investors and exporters trade forex was about $1.57 billion between June 2020 and July 17, 2020, which falls short of demand according to reports. This is according to the daily market turnover data tracked from the website of the FMDQOTC within the last few weeks. The forex turnover has averaged $47 million over the last 32 days.

 

The volatility of the foreign exchange market is fueled by low forex inflow and the activities of currency speculators who are encouraged by the widening gap between the official rate and the parallel market rate.

The data from the Central Bank of Nigeria (CBN) shows a decline in the external reserve as it fell from $36.57 billion on June 3, 2020 to $36.08 billion as of July 17, 2020. The declining external reserve reduces the capacity of the CBN to intervene in the forex market, thereby putting more pressure on the market.

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Market

Oil prices drop, as COVID-19 cases hit record

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Oil prices fell on Friday, adding to steep losses from the previous session, and were headed for weekly declines on worries that renewed lockdowns following a surge in coronavirus cases in the United States and elsewhere would suppress fuel demand.

Brent crude was down by 25 cents, or 0.6 per cent, at $42.10 a barrel by 0341 GMT, after falling more than two per cent on Thursday.

U.S. oil fell 33 cents, or 0.8 per cent, at $39.29 a barrel after a drop of three per cent in the previous session.

Brent looks set for a weekly decline of nearly two per cent and U.S. crude for a fall of more than three per cent.

Trading was quiet with Singapore on holiday for an election.

While many analysts are expecting economies and fuel demand to bounce back from the pandemic, record daily increases in coronavirus infections in the U.S., the world’s biggest oil consumer, raised concerns about the pace of any recovery.

“I do not suspect many oil traders will be looking to place significant bids in the market today, suggesting prices may continue to wallow into the weekend,’’ said Stephen Innes, Chief Global Markets Strategist at AxiCorp.

More than 60,500 new COVID-19 cases were reported in the U.S. on Thursday, setting a daily record, with Americans being told to take new precautions.

The tally was also the highest daily count yet for any country since the pathogen emerged in China late last year.

In Australia, the government on Friday will consider reducing the number of citizens allowed to return to the country from overseas, after authorities ordered a new lockdown of the country’s second-most populous city, Melbourne.

Oil inventories also remain bloated due to the evaporation of demand for gasoline, diesel and other fuels during the initial outbreak.

U.S. crude oil inventories rose by nearly six million barrels last week after analysts had forecast a decline of just over half that figure.

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CBN devalues official rate of Naira to N381/$1

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The Central Bank of Nigeria has devalued the naira by 5.8% to N381 per dollar at the official market on Tuesday, as the apex bank took yet another step towards a uniformed exchange rates.

This was disclosed by data obtained from FMDQ OTC Securities Exchange on Tuesday.

The official rate which had been at N360/$ since March was quoted at N381/$ at market close on FMDQ, with analysts expecting the CBN to reflect the change on its website tomorrow.

It’s the second time the CBN has devalued the official rate this year following the crash in oil receipts, Nigeria’s major foreign exchange earner.

The CBN first devalued the official rate in March when it moved from N306/$, where it had been for over two years, to N360/$.

With the latest move, the CBN has collapsed the official rate with its special market intervention sales (SMIS) rate, bringing the country’s multiple rates to within three.

The SMIS rate was also devalued to N380/$ from N360/$ last Friday.

Unification of the multiple exchange rates is one of the requirements for Nigeria to assess a $2.5 billion World Bank loan and formed part of the promises made to the International Monetary Fund (IMF) before the disbursement of a $3.4 billion facility.

“Oil revenue in naira should get a minor boost,” from the devaluation of the official rate, said Omotola Abimbola, an analyst at Lagos-based Chapel Hill Denham.

What it means: Analysis shows that the move could add N70 billion to the amount made available to the three tiers of government via the monthly federal accounts allocation.

“Now, CBN has to unshackle the I&E window, and maybe we can put this FX liquidity problem behind us,” Abimbola said.

There has been a strong clamour for adopting a more market-friendly approach to managing Nigeria’s FX market and the latest development comes after the CBN Governor, Godwin Emefiele, told some foreign investors that the desire of the central bank “is to achieve exchange rate unification” around the Nigerian Autonomous Foreign Exchange Market (NAFEX)/ I&E rate.

The I&E rate closed at N386/$ Tuesday.

There are however claims that the I&E rate is being rigged by the CBN as liquidity has long dried up in the market which was created in 2017 by the CBN to meet the dollar needs of investors and exporters.

“There’s no liquidity in the I&E window and that has redirected a lot of demand to the parallel market,” one trader said.

“Transactions of many manufacturers and businesses are now being priced at the parallel market rate,” the person said.

The naira trades much weaker at the parallel market at N460/$.

Emefiele however believes that the parallel market rate is being driven by speculators and illegal dealings and has so far discarded the rate as a measure of the naira’s market value.

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CBN injects $11.5 billion in forex market in 3 months

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Emefiele

The Central Bank of Nigeria injected $11.5bn foreign exchange into the economy in the first three months of 2020.

Latest figures from the CBN on the supply of forex showed that $2.96bn, $3.39bn and $4.7bn were injected into the market in January, February and March respectively.

The investors’ and exporters’, small and medium enterprises and invisible segments got a total of $7,23bn; the Bureau De Change segment got $3.6bn, while the interbank and WDAS/RDAS got the rest.

According to the data, a total of $14.72bn was injected into the market in 2018 while $28.55bn was injected in 2019.

Due to the COVID-19 pandemic which led to the introduction of lockdown in the country in April, the bank suspended sales of forex to the market.

It, however, commenced partial sales in May to all commercial banks to cater for parents and the SMEs making essential imports needed to revamp economic activities across the country.

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