Improved activity in the once decrepit Nigerian foreign exchange market has the newly introduced Investors’ and Exporters’ window to thank.
Foreign exchange transactions have consistently improved since the creation of the new window in April.
In the month of May, transactions soared to a 10-month high of N3 billion, according to data compiled by BusinessDay.
This represents a 31 percent increase compared to April- the month the window was created- and a 48 percent increase from March.
Source: FMDQ, BusinessDay
A plunge in oil revenue on the back of weak prices and production, as well as capital controls imposed by the Central Bank of Nigeria (CBN) led to a dollar dry up in Nigeria’s foreign exchange market, tipping Africa’s largest economy into its first recession since 1991 and sending the naira to an all time low of N520 per dollar at the parallel market, where most households and businesses source the green back.
In what is viewed as tentative steps toward freeing its currency amid economic turmoil caused by a shortage of dollars, the apex bank introduced a new window for Investors and Exporters- NAFEX- on April 24.
Stocks have since rallied to a more than two year high, while the naira dollar exchange rate has gained at the parallel market.
The naira gained N1 to close at N367 per dollar on Friday at the parallel market and closed at N373 at the new I&E window.
Already, the country’s traditional forwards market-where the naira continues to be quoted at N305 per dollar, is facing competition from an upstart based on the new NAFEX window.
Bond investors and speculators are now switching away from non-deliverable forwards that are linked to the main interbank exchange rate, which is tightly controlled by the central bank, and embracing the more liberal pricing mechanism at the new window.
Liquidity flows via the Investors’ & Exporters’ FX Window recorded a total of $203.46 million traded for the week-ended June 2, 2017, a 51.04% decrease from $415.60 million recorded the previous week, according to FMDQ data.
For the week-ended June 2, 2017, trading activity in the Spot FX market between the banks (FMDQ Dealing Member (Banks)/Authorised Dealers) and their clients stood at $511.39 million (average daily turnover of $127.85 million), representing a 43.14% decrease from the $899.41 million (average daily turnover of $179.88 million), recorded in the previous week.
Activity in the Spot FX market among banks for the same trading week revealed a 13.09% decrease, as a total turnover of $106.12 million (average daily turnover of $26.53 million) was recorded against the $122.10 million (average daily turnover of $24.41 million) reported the previous week.
Nigeria is in its second year of an economic recession. Output collapsed by 0.5 percent in the first three months of this year. The economy will probably grow 0.8 percent this year, according to IMF estimates.
LOLADE AKINMURELE
