Naira outlook remains stable on CBN continued intervention

The near term outlook for the naira remains stable on the continued intervention of the Central Bank of Nigeria in the foreign exchange market, according to analysts. They forecast that exchange rate of the local currency would continue to trade within tight bands premised on the Apex bank’s ability to support foreign exchange market liquidity and stability.

In continuation of its push to guarantee foreign exchange liquidity, the Central Bank of Nigeria (CBN) on Friday, June 1, 2018 sold a total of $331.41 million to players in different sectors in the Retail Secondary Market Intervention Sales (SMIS).

Friday’s sale of foreign exchange by the CBN came closely on the heels of its intervention in the wholesale segment of the market on Wednesday, May 30, 2018, when it pumped the sum of $210 million in the inter-bank forex market.

Confirming the releases, Isaac Okorafor, the bank’s acting director, corporate communications, said companies in the agricultural, airlines, petroleum products and raw materials and machinery sectors were the beneficiaries of the intervention.

He explained that the CBN continued to make interventions in the forex market in order to guard against illiquidity and checkmate actions of speculators that could mount pressure on the country’s reserves.

Reiterating the assurances of Godwin Emefiele, the CBN governor, Okoroafor said the bank was buoyant enough to meet the foreign exchange requests of various customers cut across the different segments of the market.

He therefore charged every customer requiring foreign exchange to approach their respective banks with relevant documents to make formal requests, stressing that the authorized dealers had enough supply to meet every legitimate request.

The CBN had directed deposit money banks (DMBs) in the country to buy and sell foreign exchange over-the-counter to traveling customers and non-customers of banks provided they present relevant and valid travel documents.

It specifically mandated all bureau de change (BDCs) to henceforth access forex from the CBN, at least thrice weekly, failing which the CBN could review their licenses.

The Bank, on Wednesday, May 30, 2018 offered the sum of $100 million to authorized dealers in the wholesale segment of the market, just as the Small and Medium Enterprises (SMEs) segment and the invisibles window each received $55 million.

Meanwhile, the naira, Friday, June 1, 2018, exchanged at an average of N361/$1 in the BDC segment of the market across major cities in the country.

Last week, the CBN spot rate weakened, depreciating 5 kobo to N305.95/$1.00 from N305.90/US$1.00 recorded in the previous week and remained unchanged till Thursday. On Friday, the CBN spot rate further declined by 5 kobo to N306.00/US$1.00.

At the parallel market, the naira opened the week at N364.00/$1.00 (depreciating N1.00 from last week Friday) and this was sustained all through the week.

However, the NAFEX rate – in the I & E window – opened flat at N361.57/$1.00. Midweek, the NAFEX rate depreciated by 45 kobo to N362.02/$1.00, and it appreciated N1.05 and 12 kobo on Thursday and Friday respectively to close the week at N360.85/$1.00. Subsequently, activity level in the I & E window strengthened as total turnover on Thursday rose by 92.8 percent to $1.7 billion from $883.9 million recorded the prior week.

In the FMDQ OTC futures market, the total value of open contracts of the naira settled OTC futures contracts strengthened by $492.6 million (14.3% expansion) to $3.9 billion relative to $3.5 billion recorded in the preceding week. The most subscribed instrument is the JUN-2018 with a total market value of $638.9 million (contract price: N361.82) while the JUL-2018 instrument was the least subscribed with a total market value of $403.7 million (contract price: N361.97).