Dollar supply, which rose sharply to $407.66 million on Thursday, the same day the Central Bank of Nigeria (CBN) lifted the forex ban on 43 items, dropped by 86.99 percent on Friday.
Data from the FMDQ showed that the dollar supply, which reflected the volume of transactions at the Investors and Exporters (I&E) forex window, declined to $53.02 million on Friday from $407.66 million the previous day.
The CBN on Thursday restored the 43 items prohibited from access to foreign exchange (FX), eight years after, a move seen to usher in a single exchange rate.
Naira fell by 0.75 percent to N764.86 per dollar on the first trading day after the lifting of the FX restrictions, compared to N759.20/$1 on Thursday at the I&E window, data from the FMDQ indicated.
Willing buyers and willing sellers quoted the dollar at N799.90 as the highest bid and N475, the lowest bid rate.
At the parallel market, also known as black market, naira lost 0.86 percent (N9), to the dollar, which was quoted at N1,049 on Friday. This was weaker than N1,040 traded on Thursday at the black market.
As part of its responsibility to ensure price stability, the CBN will boost liquidity in the Nigerian Foreign Exchange Market by interventions from time to time. As market liquidity improves, these CBN interventions will gradually decrease, the CBN said
“While we believe this is a positive move, we are uncertain of the demand volume this would drive to the I&E window and if the CBN has the capacity to meet that demand in the short term,” analysts at Afrinvest Research said.
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“Secondly, the possibility of FX intervention is questionable given that the country’s external reserve is already stretched. While it is unclear how the CBN intends to achieve these objectives, we expect the recent Naira depreciation to slow down a tad bit,” the analysts said.
Nigeria’s external reserves have declined to $33.22 billion as of October 11, 2023, according to the data on the CBN website.
A report by Cowry Asset Research noted that oil prices surged by nearly 4 percent on Friday following the United States’ adoption of a more stringent approach to Western sanctions against Russia.
This development added to the mounting concerns about oil supply disruptions,particularly in light of escalating tensions in the Hamas-Israel conflict.
The combination of these factors contributed to the substantial increase in oil prices. Additionally, the price of Nigerian Bonny Light crude oil closed positively at $95.59 per barrel from $93.26 per barrel.
Analysts at Cowry Asset Management Limited said the decision by the CBN to lift FX restrictions on the banned 43 items is seen as a positive development for Nigeria’s economy and the FX market and it is expected to help stabilize the Naira by reducing demand pressure across markets.
However, a key challenge to this change is the availability of FX supply. Foreign investors have been interested in the Nigerian market, but they’ve faced difficulties repatriating income and dividends due to FX policy inconsistencies and a lack of sufficient greenbacks in the market, the report stated.
In the coming week, Cowry Research anticipates the naira to trade in a relatively calm and positive band barring any further market distortion following the latest development.
