Thursday, July 5, 2022: The Nigerian Investors and Exporters (I&E) FX Window closed yesterday’s trading session on a bearish note with the Naira slipping down to N428.16/$1 at the official market representing a 0.43 percent decline against the Dollar.
An exchange rate of N444/$1 was the highest rate recorded during the intra-day trading before it settled at N428.16/$1, while it also traded as low as 413.50 during intra-day trading. A total of N222.84 million in FX value was traded in the official I&E window for the period being reported.
In the parallel market, as people continued to source for funds the Naira weakened against the dollar to exchange at about N615/$1, thereby driving down the value of the currency to a record low by 0.5 percent from the previous trading rate of N612/$1.
Shortages in the supply of the dollar have been the driver of the downswing in the currency of Africa’s largest economy, leading to persistent illiquidity in the market as participants’ demands were unmet in the official market due to the limited supply of FX in the market. This is causing a widening gap in Nigeria’s foreign exchange market as the greenback sold at a 44% premium in the parallel market yesterday.
The foreign reserve has remained relatively stable since the end of June, recording a slight improvement of N16.98 billion (0.04 percent) as of June 5 from the value recorded the on 4th of June.
As the rising crude oil prices have not translated to a windfall gain for Nigeria and there haven’t been serious improvement in the foreign reserve since the uptick in the price of the commodity, analysts anticipate continued intervention of the CBN as the bank has been maintaining the reserve levels around the N39 Billion since ending June.
What is the Position of the CBN
The central Bank of Nigeria had preciously expressed its plan to continue with a managed float approach in controlling the naira and not resort to a clean float exchange rate regime. This is to avoid an uncontrollabe spiral on the naira.
According to The Guardian, Godwin Emefiele, governor of the Central Bank of Nigeria, at the 2022 Spring Meetings of the IMF and the World Bank said, the managed float which allows the CBN to intervene in the market when there are supply shocks, would be in place as long as demand exceeds supply.
The CBN believes the outcome of a managed-float exchange rate policy on the value of the naira would be better than that of a free exchange rate system because the country faces peculiar challenges.
