The value of the naira weakened to 430 naira to the dollar at the Investors and Exporters (I&E) window as the country’s external reserves continued to rise last week. Foreign exchange reserves increased by $75 million during the week to reach $39.43 billion as of July 14, 2022.
In the parallel market, the value of the naira also weakened from the 616 naira it was selling at the start of the week to selling at 618 naira to the dollar at the close of business on Friday. At the I&E counter, the value of the local currency had depreciated as turnover in the market fell.
Compared to N424 to the dollar that the currency closed the previous week, as of Friday close of business, the value of the naira had fallen to N430.33 to the dollar. Market turnover as of July 14, 2022 decreased by 73.2% to $149.07 million as trades occurred within the range of N411.42 to N444 per dollar.
In the futures market, the rate was stable at 1 month at 427.37 naira per dollar contract, but weakened at 6 months by -0.1% at 449.55 naira per dollar and at 1 year of -0.2%. at 472.81 naira per dollar contract. The 3-year rate appreciated by 0.1% to 435.17 naira for the dollar.
According to analysts at Cordros Research, shortages of dollars have persisted given the limited supply of currency through official channels amid rising demand for currency supported by summer travel and political activities.
“We understand that travelers and manufacturers have continued to resort to the parallel market as most of their currency needs remain unmet at official counters. Therefore, since the last policy meeting, the local currency has depreciated by 1.3% each to 424.63 Naira and 617 Naira per dollar at the IEW and in parallel, respectively, as of July 14.
“In the meantime, the Investors and Exporters Window (IEW) entries have improved as the CBN’s non-oil export earnings repatriation rebate program appears to be bearing fruit. Specifically, total inflows to the IEW rose 62% month-on-month to $1.84 billion in June, from $1.14 billion in May, its highest level since December. 2021, when it was $2.42 billion, though still significantly below the Q1-20 monthly average. $3.68 billion.
“The improvement is mainly due to a 70.3% increase month-over-month in entries from local players, representing 88.4% of total entries. Notably, we highlight that entries from exporters (193, 7% m/m to $1.02 billion) hit their highest level since the CBN established the IEW, reflecting the impact of the CBN’s rebate program to attract non-oil exports.
“We underscore that inflows from foreign investors remain tepid compared to pre-pandemic levels, reflecting forex liquidity issues and an overvalued currency,” he said.