Foreign exchange inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) surged by 66.7 per cent last week to $2.2 billion after banks complied with the new directives of the Central Banks of Nigeria.
The bountiful supply was however not buoyant enough as the
value of the naira dipped by 2.3 per cent.
The CBN had issued a series of circulars and guidelines with
new macroprudential limits for net open positions as well as removing
restrictions on International Money Transfer Operators (IMTOs) exchange rate
quotes as part of efforts to boost liquidity and curb the volatility in the
foreign exchange market.
By the end of last week, inflow of dollars at the NAFEM
window, which is also known as the Investors and Exporters (I&E) window
surged to $2.2 billion..
The value of the naira at the I&E window had depreciated
by 2.3 per cent to close the week selling at N1,469.97 to the dollar with
trades consummated between N830 and N1,550 to the dollar at the official
window.
At the parallel market, the value of the naira had similarly
lost value at N1,470 to the dollar, an 8.2 per cent decline in the value of the
local currency. According to analysts at Cordros Research, the boom in forex
supply at the I&E window was due to banks complying with the new
macroprudential limit for net open positions amid the CBN removing restrictions
on IMTOs exchange rate quotes, as well as interbank forex deal spreads and
interbank sale of proceeds.
The analysts at Cordros say they expect the pressure on the
local currency to persist, as the CBN’s updated policy on limiting banks’
foreign currency exposure will continue to support turnover in the NAFEM and
improve supply to the market over the short-term.
“Also, with significant gains made with regards to
addressing the forex backlog, the potential for a more stable forex market
seems possible. However, we do not expect to see meaningful appreciation of the
currency until the apex authority ensures the backlog is completely cleared,
policy actions are further aligned to be frictionless, the frictionless policy
actions are sustained, and it builds capacity to intervene within the market to
limit volatility during periods of pressure,” they stated.
Analysts at Afrinvest West Africa, in an emailed note stated
that the “CBN governor might be looking at the wrong side of the spectrum in
emphasising dollar demand for services and imports as the root causes of the
declining Naira, given that demand for services and imports would always exist
if not readily available in the country.
“Moreso, a chunk of these travellers eventually morph into
diaspora workers who remit forex back into the country as remittance remains
the most resilient source of forex inflows to date. Therefore, blaming the
current forex crisis on demand-pull factors might be a distraction in tackling
the issues affecting supply.
“We opine that the CBN should instead focus on reforms that
would restore confidence in the market and boost major forex inflow channels.
In light of this, we applaud the CBN’s continued work to clear verifiable forex
backlogs as it is a much needed step in the right direction to restore
confidence in the market.
“Also, the narrowing of the negative real rate of return as
evidenced by the upward repricing of yields at the recent NT-Bills auction is
commendable. However, we reiterate that closer coordination with the fiscal leg
is needed to curb excess liquidity given that money supply grew 510 per cent to
N78.7 trillion at the end of 2023.”