Persistent Forex Scarcity as CBN Resumes Intervention

……Waffi TV findings indicate that the Naira depreciated further to N770.17 per dollar

By Marian Eko:

Banks appear to be disregarding the directive from the Central Bank of Nigeria (CBN) that they should allow their customers unrestricted access to withdraw foreign currencies from their domiciliary accounts.

Despite recent market reforms implemented by the CBN, Nigeria’s foreign exchange market has experienced significant changes. However, according to investigations conducted by Financial Vanguard, banks are still limiting the amount of foreign currency that customers can withdraw, citing scarcity as the reason.

Both dealers and customers interviewed, expressed frustration, as this situation has hindered the supply of foreign currency to the market.

Nonetheless, the changes in the structure and operations of the foreign exchange market have inadvertently led to exchange rate convergence, with the US dollar trading within a narrow range across three market segments: the Investors and Exporters (I&E) window, the Bureau De Changes (BDCs), and the black market. Interestingly, the exchange rate in the official market (I&E) surpassed that of the black market for the first time.

Despite the resumption of foreign currency supply by the CBN, albeit at a very low volume, dealers in all market segments continue to face a severe scarcity of US dollars. Waffi TV findings indicate that the Naira depreciated further to N770.17 per dollar in the I&E window, with currency dealers projecting a worsening scarcity of the dollar, which may lead to further depreciation of the local currency in the upcoming week.

According to data from FMDQ, the I&E window exchange rate closed at N770.17 per dollar on Friday, reflecting a 16.2% week-on-week depreciation compared to the previous week’s closing rate of N663.04 per dollar. Similarly, the Naira depreciated in the parallel market, where the dollar traded between N765 and N770 per dollar at the close of business, up from N759 per dollar the previous week.

The Naira has been experiencing a downward trend in both the official and parallel markets since the CBN’s announcement of “Operational Changes to the Foreign Exchange Market,” which included the elimination of multiple exchange rates/segments and the reintroduction of the willing seller, willing buyer model in the I&E window. Since these changes were implemented the previous week, the Naira has depreciated by 63% in the I&E window, starting from N471.67 per dollar on Tuesday, June 13th. Additionally, during the same period, the Naira has depreciated by 20% in the parallel market, falling from N755 per dollar.

Currency dealers cited acute scarcity of dollars as the driving force behind the depreciation in both the I&E and parallel markets. A banker and forex market analyst, speaking anonymously to Financial Vanguard, stated that although the CBN intervened in the I&E window by selling dollars, the market is still experiencing a significant shortage in terms of supply. The volume of sales by the CBN was relatively low, with the highest volume sold per buyer being $5 million, while others received amounts ranging from $2.5 million to $250,000-$1 million.

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