Naira averages at N314.49/$ on improving liquidity

The Naira appreciated against the greenback on the spot market Monday, as the Central Bank of Nigeria (CBN) directive regarding foreign exchange (FX) related trades takes effect.

FX transactions in markets other than the FMDQ OTC trading floor were not allowing for adequate liquidity and transparency, 22 days after the apex bank liberalised the market.

“What drives liquidity is confidence. If all FX trades are in public domain, it will boost transparency and improve dollar supply,” a market source told BusinessDay on condition of anonymity.

The Naira averaged N314.49/USD yesterday, from a low of N310/USD and a high of N324/USD, data at the FMDQ showed. The total volume of trade reached $48.019million in 28 deals.

The CBN had in a circular signed by Alvan Ikoku, director, financial markets department, directed that all FX related trades by authorised dealers and corporate institutions in the Nigerian forex market, be executed through the FMDQ-advised FX trading, effective yesterday (August 1).

This was in furtherance of efforts to engender transparency and liquidity in the Nigerian foreign exchange market. As compliance gets underway, the naira firmed.

“The naira appreciation may have been supply driven,” an FX trader told BusinessDay by phone. “As at 5:00 pm, $48 million had been traded. It is possible we have seen more supply on the back of the CBN directive, but I’m not sure to what extent,” he added.

Our checks show that as at 11:16am the local currency exchanged at N324/USD when $8.975million was traded, the highest volume recorded. Also, a cumulative $18million was traded at N315.50/USD in various deals. Among other deals at various rates at the spot FX market, $5million was traded at N310/USD.

Analysts say the impact of capturing every legitimate FX trade at the interbank market will restore liquidity as well as boost investors’ confidence. The CBN directive simply seeks to put a lid to liquidity concerns.

Trading volumes in the Nigerian interbank foreign-exchange market are yet to pick up to pre-2014 levels, even after the central bank responded to portfolio investors’ yearnings by devaluing the naira, clearing a backlog of dollar demand by selling more than $4 billion in the spot and forward markets on the first day without the peg.

“The desired impact of the CBN’s new flexible market-driven FX policy, which was launched June 20, is likely to be felt over time, given that the CBN is still the predominant supplier of FX,” said Gregory Kronsten and Chinwe Egbim, FBN Quest analysts, in an August 1 note to investors.

“Autonomous suppliers (other than the oil majors) are expected to enter the market tentatively and, until they return in good numbers, we are not sure to what extent the CBN can sustain FX liquidity.”

Analysts say the longer these players hold back from supplying FX to the new market, the greater the pressure on the naira exchange rate.

Nigeria is seen ramping up efforts to address exchange rate challenges which partly aided inflation to touch an 11 year-high of 16.5 percent in June, according to the National Bureau of Statistics (NBS).

Monetary Policy Rate (MPR) was jerked up to a record high of 14 percent, last week Tuesday as a fall-out from the Monetary Policy Committee (MPC) meeting.

Iheanyi Nwachukwu & Lolade Akinmurele