Naira retreats to 1,400/$ on renewed demand pressure

…Lack of hedge exposes foreign investors

The Nigerian naira on Thursday fell to N1,400 against the US dollar on the black market, following renewed demand pressure in the foreign exchange (FX) market.

With the current exchange rate, the naira has lost 19.64 percent in two weeks when compared to N1,125 per dollar quoted on April 12, 2023 on the parallel market, popularly called the black market.

At the Nigerian Autonomous Foreign Exchange Market (NAFEM), the naira depreciated to N1,308.52 per dollar on Wednesday.

Compared to the level on April 12, 2024, the naira has weakened by 12.69 percent from N1,142.38 per dollar in the last two weeks, according to data from the FMDQ Securities Exchange.

Lack of hedge exposes foreign investors

The naira has retreated this week as dollar liquidity dips on the back of the exit of some foreign portfolio investors who have been spooked by the Israel-Hamas war and a stronger dollar.

“There’s a lack of hdege- no NDFs and no ETDs- so FPIs are exposed to the Israel-Hamas war and with a statement of no intention to intervene by the CBN, they are selling their fixed income securities to take out their capital,” a source familiar with the matter told BusinessDay.

“The market needs exchange rate hedging products to manage volatility,” the source said.

On Monday, the Central Bank of Nigeria (CBN) approved the allocation of $15.83 million to 1,583 Bureau De Change (BDC) Operators.

The CBN in a letter to BDCs announced the allocation of $10,000 to Bureau De Change operators across the country. The allocation comes at a rate of N1,021 per US dollar, aimed at stabilizing the foreign exchange market and ensuring accessibility of foreign currency to eligible end users.

According to a letter released by the CBN to the President Association of Bureau De Change Operators of Nigeria, all eligible BDCs are directed to initiate payments of the Naira deposit to specified CBN Naira Deposit Account Numbers starting from Monday, April 22, 2024. Upon submission of confirmation of payment and necessary documentation, the CBN will disburse foreign exchange at the respective CBN branches.

The directive emphasizes that BDCs are obligated to sell the allocated foreign currency to eligible end users at a spread not exceeding 1.5 percent above the purchase price. This measure aims to ensure transparency and fair pricing in the foreign exchange market, thereby benefiting both BDC operators and end users.

Hassan Mahmud, director of the trade and exchange department at the CBN, reiterated the importance of BDCs adhering to the rules and conditions outlined in previous communications and operational guidelines.

“The latest move by the CBN reflects ongoing efforts to stabilize the foreign exchange market, promote transparency, and facilitate access to foreign currency for businesses and individuals in Nigeria. The allocation of $10,000 to BDC operators is expected to have a positive impact on the economy, particularly in facilitating international trade and investment,” BDC operator said.