It has been reported that FX inflows at the Nigerian Autonomous Foreign Exchange Market (NAFEM) increased by 66.7% last week to settle at $2.2 billion after local commercial banks followed the directives issued to them by the Central Bank of Nigeria.
However, more than the impressive result recorded last week is needed to strengthen the country's currency, as the value of the naira still witnessed a decline of 2.3%.
Last week, the Central Bank of Nigeria (CBN) released different circulars with various guidelines with new macroprudential limits for net open positions and also removing some restrictions on International Money Transfer Operators' (IMTOs) exchange rate quotes as part of its ongoing efforts to improve liquidity and cushion volatility in the FX market.
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Due to the efforts of the CBN directives that were acted upon by banks around the country, the inflow of dollars at the NAFEM window, also called the Investors and Exporters (I&E) window, increased to $2.2 billion.
The naira at the I&E window fell by 2.3% to close for the trading week at N1,469.97/$, with trade carried out between N830 and N1,550/$ at the official window.
The naira also lost value at the parallel market to sell for N1,470/$, representing an 8.2% decline in the local currency traded against the dollar last week.
Following this, there have been some reactions from analysts at Cordros Research, which say that the FX supply at the I&E window was because commercial banks complied with the new macroprudential limit for net open positions along with the apex bank removing restrictions on IMTOs exchange rate quotes as well as interbank forex deal spreads and interbank sale of proceeds.
According to the analysts, they expect more pressure on the local currency to continue as the CBN updates its policy on limiting banks' foreign currency exposure, which will continue to strengthen the turnover in the NAFEM and improve supply to the market over the short term.
They said,
- Also, with significant gains made regarding addressing the forex backlog, the potential for a more stable forex market seems possible. However, we do not expect to see meaningful appreciation of the currency until the apex authority ensures the backlog is completely cleared, policy actions are further aligned to be frictionless, the frictionless policy actions are sustained, and it builds capacity to intervene within the market to limit volatility during periods of pressure.