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Monday, 26th June 2023

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Home » Business » Forex scarcity persists as CBN resumes intervention
Business

June 26, 2023


FOREX SCARCITY PERSISTS AS CBN RESUMES INTERVENTION

Banks ignore CBN’s directive on domiciliary accounts

Exchange rates converge around N770/$



By Babajide Komolafe, Economy Editor & Elizabeth Adegbesan

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There are indications that banks are ignoring the Central Bank of Nigeria, CBN,
directive that they should grant their customers unfettered withdrawal of
foreign currencies from domiciliary accounts.


Meanwhile, Nigeria’s foreign exchange market has recorded a drastic change
following the market reforms introduced by the CBN, previous week.


Financial Vanguard  findings show that the banks are still restricting the
amount of foreign currency that customers can withdraw from their accounts
saying the currencies are still scarce.


Dealers and the customers who spoke to  Financial Vanguard  lamented that the
situation has impeded supply of foreign currency to the market.


But the drastic change in both structure and operations of the foreign exchange
market, according to the  Financial Vanguard  findings has resulted in exchange
rate convergence by default as the US dollar traded within narrow band across
the three segments of the market, namely, the Investors and Exporters (I&E)
window, the Bureau De Changes (BDCs) and the black market.


However, for the first time, the exchange rate in the official market (I&E)
surpassed what obtained in the black market.


Meanwhile, dealers across all the segments are facing acute scarcity of the US
dollars while CBN resumed supply of the foreign currency last week, though at a
very low volume.



Findings by  Financial Vanguard  show that Naira last week depreciated further
to N770.17 per dollar in the I&E window, with currency dealers projecting
further deterioration of the dollar scarcity, a situation which may propel
further depreciation of the local currency this week.

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According to data from FMDQ, the I&E window exchange rate closed at N770.17 per
dollar on Friday. This represents 16.2 per cent week-on-week, WoW, depreciation
of the Naira when compared with the closing rate of N663.04 per dollar the
previous week.  

The Naira also depreciated in the parallel market, where the dollar traded
within the range of N765 and N770 per dollar, at the close of business,  up from
N759 per dollar the previous week. 

 

The Naira has been on the downward trend in both the official market and
parallel market, since the Central Bank of Nigeria, CBN announced, “Operational
Changes to the Foreign Exchange Market,” including elimination of multiple
exchange rates/segments and re-introduction of willing seller, willing buyer
model in the I&E window.  



Since the changes were announced the previous week, the Naira has depreciated by
63 per cent in the I&E window, from N471.67 per dollar on Tuesday June 13th.

During the same period, the Naira also depreciated by 20 per cent in the
parallel market from N755 per dollar.

Dollar scarcity

Financial Vanguard  findings from currency dealers showed that the depreciation
is driven by acute dollar scarcity in both I&E and the parallel market.

A banker and  forex market analyst who spoke on condition of anonymity told 
Financial Vanguard, “Though the CBN intervened in the I&E window on Thursday,
the market is still very short, in terms of supply. The volume of sales by the
CBN was not much. The highest volume sold per buyer was $5 million dollars. Some
others got $2.5 million while others got between $250,000 and $1 million.



“They, however, sold only to people that bided at an exchange rate above  $761
per dollar.

“After the CBN’s sales, some international organisations also sold but the
volume was small compared to the demand, especially given the backlog of matured
obligations.  I will say the market is still evolving and going through a price
discovery process. The volatility will continue with the Naira further
depreciating,  depending on dollar supply coming into the I&E window.

“The true exchange rate will only emerge when all the backlog of dollar demand
has been satisfied.”

Operators react

Bureaux De Change, BDC, operators and parallel market operators who spoke to 
Financial Vanguard  lamented the dollar scarcity in the market, noting that
banks are yet to comply with the directive of the CBN that they should allow
customers have unfettered access to funds in their domiciliary accounts.



Mallam Ahmed Yunusa, a black market trader in Lagos,   said: “The market has
been very busy since last week after the CBN eased its restrictions on forex
trading in banks.  

“A dollar was sold for N770 today (last Friday) because I bought a dollar for
N765 making just N5 profit. However, over the week, the dollar has been traded
at N745 to N770.

“The reason for this is because most of our customers who visited the banks
complained the demand for dollars is higher than the supply and that the banks
don’t have enough dollars to go round hence the rise in the price for the
willing buyers.

“Most traders at the parallel market decided to sell a bit less or higher within
the price range of banks to keep our customers as the competition becomes
tougher.

“I see a continuous rise in the volume of demand for the dollar as we approach
the end of the year and an appreciation of the Naira to N500 or N600 per dollar
in the near term if dollar supply increases.”



On his part, Mallam Umoru Mohammed, another black market trader  in Lagos, said:
“The dollar has been trading since last week  from N740 to N770.  Today the
dollar was traded at N750.  

“Here in Ikorodu, businesses have been dull as not many sold dollars to us hence
I  was not able to get  supply of dollars due to the higher demand of dollars
than supply.

“I see the Naira depreciating to N800 per dollar due to the inability of traders
to meet the demands of buyers as we approach the remaining half of the year but
if there is more forex inflows the reverse will be the case.”

Similarly, Garuba Hassan, a parallel market operator also in Lagos, said: “Today
(last Friday) we are buying at N750 per dollar, but yesterday the rate was
between N760 and N770 per dollar. If you go to the banks, they will tell you no
dollars. You will have to visit about three banks before you can get the
dollars, and this is affecting the market and the rate.”

Speaking on condition of anonymity, a Bureaux De Change, BDC, operator, and
executive member of Association of Bureaux De Change Operators of Nigeria,
ABCON, said: “There is nothing like  BDC exchange rate  because the CBN is not
selling dollars to BDCs. We all compete with the parallel market operators  for
dollars and as such we have to ensure our rates match theirs.



“The situation in the market now is that demand is high but dollars are still
scarce because there is no supply.

  

“People that want to withdraw  dollars from  their domiciliary account are not
able to do so. The banks keep telling them there are no dollars.  

“But I believe the Naira will appreciate in the coming weeks. The sharp
depreciation of the Naira in the I&E window, I believe, is to encourage
investors and Nigerians in Diaspora to bring in their dollars.

“Once this happens, the exchange rate in both I&E and the parallel   market will
gradually go down.”  






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DISCLAIMER

Comments expressed here do not reflect the opinions of Vanguard newspapers or
any employee thereof.



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