There are indications that banks are defying the Central Bank of Nigeria's (CBN) decision to allow consumers unrestricted withdrawal of foreign currency from domiciliary accounts.
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CBN Resumes Intervention As Forex Scarcity Continue |
Meanwhile, Nigeria's foreign exchange market has seen a significant shift as a result of the CBN's market reforms implemented the previous week.
According to media source data, banks are still limiting the amount of foreign currency that consumers can withdraw from their accounts, citing currency scarcity.
Customers and dealers who contacted the media expressed concern that the situation has hampered the supply of foreign currency to the market.
However, according to Regency Reporters® findings, the drastic change in the structure and operations of the foreign exchange market has resulted in exchange rate convergence by default as the US dollar traded within a 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 official market (I&E) exchange rate eclipsed the black market rate.
Meanwhile, dealers across all segments are experiencing severe shortages of US dollars, despite the fact that the CBN began supply of the foreign currency last week, albeit in very small quantities.
According to Regency Reporters®, the Naira sank further last week in the I&E window to N770.17 per dollar, with currency dealers anticipating more deterioration of dollar scarcity, a condition that may accelerate further depreciation of the local currency this week.
According to FMDQ data, the I&E window exchange rate closed Friday at N770.17 per dollar. When compared to the previous week's closing rate of N663.04 per dollar, this reflects a 16.2 percent week-on-week, WoW, depreciation of the Naira.
The Naira also fell in the parallel market, where the dollar was trading between N765 and N770 per dollar at the close of business, up from N759 the previous week.
Since the Central Bank of Nigeria, CBN announced "Operational Changes to the Foreign Exchange Market," including the elimination of multiple exchange rates/segments and the reintroduction of the willing seller, willing buyer model in the I&E window, the Naira has been on a downward trend in both the official and parallel markets.
Since the revisions were announced the previous week, the Naira has depreciated by 63% in the I&E window, from N471.67 per dollar on Tuesday June 13th to N471.67 per dollar today.
During the same time period, the Naira devalued by 20% in the parallel market, falling to N755 per dollar.
• Dollar Shortage
According to Regency Reporters® findings from currency dealers, the depreciation is being driven by acute dollar scarcity in both I&E and the parallel market.
"Though the CBN intervened in the I&E window on Thursday, the market is still very short in terms of supply," a banker and currency market analyst who spoke on condition of anonymity told the media.
The CBN's sales volume was small. The greatest volume sold per buyer was $5 million dollars. Others received between $250,000 and $1 million, while others received $2.5 million.
"However, they only sold to people who bid at a rate higher than $761 per dollar."
"Following the CBN's sales, some international organizations sold as well, but the volume was small in comparison to demand, particularly given the backlog of matured obligations." I will remark that the market is still evolving and in the process of price discovery. The volatility will continue, with the Naira weakening further depending on dollar supplies entering the I&E window.
"The true exchange rate will emerge only when all of the backlog of dollar demand has been satisfied."
• Operators Respond
Bureaux de Change, BDC, operators, and parallel market operators who spoke to the media bemoaned the scarcity of dollars in the market, noting that banks have yet to comply with the CBN's directive that they allow customers unrestricted access to funds in their domiciliary accounts.
"The market has been very busy since last week after the CBN eased its restrictions on forex trading in banks," said Mallam Ahmed Yunusa, a black market trader in Lagos.
"A dollar was sold for N770 today (last Friday) since I bought one for N765 and profited by N5. However, the dollar has traded between N745 and N770 this week.
"The reason for this is that most of our customers who visited the banks complained that the demand for dollars is greater than the supply, and the banks don't have enough dollars to go around, resulting in a price increase for willing buyers."
"Most parallel market traders decided to sell a little less or a little more within the price range of banks to keep our customers as competition increased."
"I see a continuous rise in the volume of demand for the dollar as we approach the end of the year, and a near-term appreciation of the Naira to N500 or N600 per dollar if dollar supply increases."
Mallam Umoru Mohammed, another Lagos black market trader, stated, "The dollar has been trading from N740 to N770 since last week." The dollar was trading at N750 today.
"Here in Ikorodu, business has been dull because not many sold dollars to us, so I was unable to get supply of dollars due to higher demand than supply."
"I see the Naira depreciating to N800 per dollar as we approach the second half of the year due to traders' inability to meet buyer demand, but if there are more forex inflows, the reverse will occur."
Similarly, Garuba Hassan, a parallel market operator in Lagos, stated, "We are buying at N750 per dollar today (last Friday), but the rate was between N760 and N770 per dollar yesterday." If you go to a bank, they will inform you that there are no dollars. You'll have to go to three banks before you can access the money, which is hurting the market and the rate."
"There is nothing like BDC exchange rate because the CBN is not selling dollars to BDCs," a Bureaux De Change, BDC, operator and executive member of the Association of Bureaux De Change Operators of Nigeria, ABCON, said on condition of anonymity. We are all competing for dollars with parallel market operators, and as such, we must ensure our rates are comparable to theirs.
"The current market situation is that demand is high, but dollars are still scarce due to a lack of supply."
"People who want to withdraw money from their domiciliary account cannot do so." The banks continue to inform them there are no dollars.
"However, I believe the Naira will strengthen in the coming weeks." I believe the rapid depreciation of the Naira in the I&E window is intended to entice investors and Nigerians in Diaspora to bring in their cash.
"Once this occurs, the exchange rate in both the I&E and parallel markets will gradually fall."