Naira depreciates across foreign exchange markets on dollar demand

Naira on Wednesday weakened against the United States (U.S) currency, losing 1.35 percent to close at N740 per dollar compared to N730/$ on Tuesday at the parallel market.

The depreciation of the naira was attributed to the rising demand for dollars. “People are buying, and there are dollars available in the market,” one of the traders in Lagos told BusinesDay.

At the Investors and Exporters (I&E) forex window on Wednesday, Naira depreciated by 0.01 percent as the dollar was quoted at N445.83 against the last close of N445.80/$ on Tuesday, data from the FMDQ indicated.

Godwin Emefiele, governor of the Central Bank of Nigeria (CBN) said the drop in oil receipts along with the tightening of global financial market conditions have weighed heavily on the country’s foreign exchange market.

He said the downward short-run trend of the external reserves reappeared at the beginning of 2022. Accordingly, after recovery from $33.7 billion in March 2020 to $41.6 billion in September 2021, official reserves fell to about $37 billion as of October 2022.

At approximately 6.4 months, import cover in October remained above the traditional 3-months threshold.

“This reflected the massive demand pressure mounted on the foreign exchange market, as import appetite remained high vis-à-vis available foreign reserves,” Emefiele said.

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In the first half of 2022, the CBN sustained its intervention in the inter-bank foreign exchange market to enhance supply, moderate demand pressures and ensure exchange rate stability.

Consequently, a total of $9.23 billion was sold in the foreign exchange market. This comprised spot sales worth $4.39 billion or 47.57 percent and forward sales of $4.84 billion or 52.43 percent.

A breakdown of the spot sales as published in the 2022 half-year activity report indicated that $2.08 billion or 47.28 percent was sold at the I&E window, $856.81 million or 19.52 percent for invisibles, $834.74 million or 19.01 percent for Small and Medium Enterprises (SMEs) and inter-bank Secondary Market Intervention Sales (SMIS) accounted for $622.92 million or 14.19 per cent.

Conversely, the bank purchased $1.33 billion during the review period, which resulted in a net sale of $7.91 billion. In addition, the sum of $7.01 billion matured in the forward segment, while $5.82 billion was outstanding at the end of June 2022.

The report noted that in the corresponding period of 2021, sales amounted to $5.83 billion, comprising spot and forward sales in the sum of $2.88 billion or 49.41 per cent and $2.95 billion or 50.59 per cent, respectively. The composition of spot sales was made up of $1.37 billion or 47.72 percent at the I&E window, $734.38 million or 25.49 percent for SMEs, $435.06 million or 15.09 per cent at the inter-bank SMIS and $337.00 million or 11.70 percent for invisibles.

In the same period, the Bank purchased US$900.19 million, resulting in a net sale of $4.93 billion. Meanwhile, the sum of $4.24 billion matured in the forward segment, while $2.82 billion remained outstanding at the end of June 2021.

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