Godwin Emefiele, CBN Governor
Naira on Recovery Mode after CBN Ends Dollar Supply to BDCs
The Nigerian local currency, naira, is in a recovery mode since the Central Bank (CBN) ends dollar supply to bureaux de change operators in the country. Pressure had sent the local currency into hibernation as currency speculators take heavy spread in the black market.
Naira stayed steady at the Investors and Exporters window at N411.50 Wednesday amidst the monetary policy authority multi-tiered exchange rate system.
Across the banking halls, the naira was sold at N412, some basis points away from the National Autonomous foreign Exchange rate of N410 as currency speculators begin to count their losses.
Though many analysts see the CBN announcement as not well-thought-through but foreign currency market trend shows it may be to the advantage of retail buyers.
However, the return of form A in Nigerian local banks could see big-ticket manufacturers’ be on the waiting list as the dollar supply into Nigeria remains low.
External Reserves recent see an uptrend, rising to $3.3 billion. For the most part of the year, the exchange rate at the Investors and Exporters has remained stable following increased intervention by the CBN.
Since the last meeting in May, conditions in the oil market have strengthened further, with Brent price rising by 8.0% to US$74 a barrel in July.
Analysts said demand for crude oil has been supported by improved industrial activities and social mobility following the impressive COVID-19 vaccine administration.
On the other hand, supply cuts instituted by the Organisation of Petroleum Exporting Countries and allies (OPEC+) members provided another layer of support to the oil market, said Cordros Capital in a report.
The investment firm analysts highlighted the potential of increased outputs from Iran, as the country is currently in discussions with several developed countries to revive its 2015 nuclear deal.
“If successful, sanctions preventing Iran from increasing its output will be lifted”, Cordros analysts stated.
Given the current market dynamics, analysts said they believe the global oil market will remain roughly balanced as demand continues to recover and OPEC+ gradually unwind production cuts to keep pace with rising demand and prices.
Pressure on naira was exacerbated by slack in dollar inflow which reduced the CBN war chest for market intervention. The apex bank dollar supply into the foreign exchange market has remained below the pre-pandemic era.
However, imports bills surged as the balance of payment remains unfavourable while capital importation tumbled significantly according to the National Bureau of Statistics data for the second quarter.
In the second quarter, the total amount of foreign currencies that flew into Nigeria for investment purposes was less than a billion. This happened at a time when portfolio investors stay sideways in the financial market.
The CBN effort to keep the dollar strong had resulted in capital control. However, foreign investors appeared worried; with MSCI Index threatening to downgrade Nigeria status while noting it is difficult to get the dollar out of the country.
Analysts however predicted that the local currency would sustain pressure amid a rally in the crude oil prices and expected Eurobond issuance and disbursement of Special Drawings Rights by the end of August from the IMF would drive accretion to the FX reserves in the near term.