Ngozi Amuche
Pressures on the naira increased in the parallel market on Friday as the United States dollar to Nigerian Naira depreciated by N3 or 0.65percent to 465.
This was despite the Central Bank of Nigeria’s foreign Exchange intervention sales.
In the Investors and Exporters Window, the local currency continues to trade within a tight band, and closed flat at 386.00.
After a 0.4 percent year to date increase, the nation’s external reserves printed at $35.81 billion.
Inability to meet demands at national autonomous foreign exchange rate market or official rates raised demand in the parallel market, thus steep exchange rates.
The local currency again plunged this week as global prices of oil trend awkwardly, just as accretion into external reserves stays weak.
Analysts explained that lower currency supply, trending below domestic demand was supporting factor for weak currency.
There have been backlog of demand that needs to be filled, analyst, Julius Alagbe, who is familiar with the currency market explained.
The apex bank had announced FX sale to the BDC segment on September 7, 2020, six months after the Bank temporarily suspended sales to the segment due to international travel restrictions.
The move renewed currency traders of moderation in exchange rate as the CBN pegged direct quote to N386.
The pattern in the domestic market however showed that there may not be a short term or immediate reverse in exchange rate in favour of the local economy due to lower foreign currencies inflow into the economy.
With international travel in the equation, analysts explained that there is hope that foreign currencies would flow both ways.
Chapel Hill Denham investment firm, in a note, explained that in the absence of CBN intervention in the past six months, the exchange rate parallel market premium has widened to N117, with the parallel market trading at 477 against Investors and Exporters Window rate at 386.
The investment firm further explained that with the intervention sales, the CBN appears determined to narrow the spread substantially.
Planned move to achieve convergence in FX rates induced the CBN to peg BDC intervention rate at 384 and directed International Money Transfer Operators (IMTOs) to sell FX to Banks and the CBN at 382 and 383, respectively.
The CBN further instructed BDCs to sell dollar to retail end-users at no more than 386.
Analysts had hoped that resumption of FX intervention sale to BDCs would help ease the FX liquidity crunch in the economy.