The impact of Covid-19 lockdown reflected in the Central Bank of Nigeria’s foreign exchange sale as the total amount of forex sold to authorised dealers decreased by 82.2 percent to US$0.84 billion in April 2020 from US$4.70 billion in March 2020, due to the low demand for foreign exchange as a result of the closure of factories and businesses.
Foreign exchange sales at the Investors and Exporters (I&E) window declined by 78.5 percent to US$0.78 billion, relative to the preceding month’s level of US$3.61 billion, the CBN’s monthly economic report for April 2020 indicated.
However, interbank sales rose significantly by 2,900 percent to US$0.06 billion from the US$0.002 billion sales in March 2020. The development was to ensure adequate foreign exchange liquidity in the market.
Sales to Bureau De Change (BDCs) were suspended on request by the BDC operators, effective March 27, 2020, because of the COVID-19 pandemic.
The monthly average turnover at the I&E FX market, which represented 70-80 percent of the total transactions in the foreign exchange market, had been on the decline persistently since February 2020, following the lull in economic activities due to the COVID-19 pandemic.
The monthly average turnover at the I&E decreased notably by 87.0 percent, from US$0.34 billion in March 2020 to US$0.04 billion in April 2020, making it a second consecutive monthly decrease since February 2020.
Daily FX turnover at the I&E forex window declined further by 9.92 percent to $18.44 million on Tuesday from $20.27 million on Monday, data from FMDQ show.
At the same time, the average exchange rate of the naira vis-à-vis the US dollar, at N384.99/US$, depreciated by 3.1 percent and 2.2 percent compared with N373.04/US$ and N364.79/US$ in March 2020 and February 2020, respectively.
This reflected increased demand pressure for investment in safe haven arising from the COVID-19 pandemic, as well as the unimpressive outlook on Nigeria by a rating agency.
Naira has further depreciated in value as the dollar was sold at N477 on the black market on Tuesday but later strengthened to N476 on Wednesday. In the same manner it was sold at N478 at the retail bureau on Tuesday but strengthened to N476 on Wednesday.
As at Tuesday, the FX market remained supply-constrained as the I&E window continued to trade leanly due to lower trade volumes. Naira weakened marginally by 0.05 percent as the dollar was quoted at N385.98 compared to N385.78 as on the previous day.
Analysts as FSDH Research said most participants maintained bids between N380.00 and N386.00 per dollar on Tuesday.
Most emerging market currencies, including the naira, were negatively impacted by the pandemic and the slump in commodity prices. The average exchange value of the naira at the interbank segment of the foreign exchange market depreciated by 15.0 percent, from N305.99/US$ in January 2020 to N360.00/US$ in April 2020.
This compared with the depreciation of other emerging market currencies, such as the Russian rouble, the Chinese renminbi (RMB) and the South African rand, which were similarly impacted by the pandemic and the slump in commodity prices.
For instance, the rand depreciated by 22.4 per cent between January and April 2020, and the South African sovereign credit was downgraded to non-investment grade by the Moody’s rating agency in April 2020. Similarly, the Russian rouble also depreciated by 17.4 per cent over the same period, on account of the COVID-19 pandemic and the slump in oil prices in the international market. The Chinese RMB exhibited similar trend with a depreciation of 2.0 per cent between January 2020 and April 2020.
