In its continued intervention in the foreign exchange market, the Central Bank of Nigeria (CBN) injected a cumulative sum of $2.04 billion to further sustain the improved liquidity and relative stability in the market.
According to the latest CBN’s monthly economic report covering the month of May 2019, Nigeria’s apex bank sold the whopping sum of $2.04 billion to authorised dealers in May, compared to $2.43 billion supplied in the previous month. This indicates a decline of 16.1%.
Key Numbers: A breakdown of the Central Bank’s intervention in the foreign exchange (FX) market in the month of May 2019 reveals that Interbank sales fell by 10% to $0.09 billion, to the level in the preceding month.
- Currency sales to the Bureau De Change (BDC) rose by 6.3% and estimated at US$1.05 billion.
- Swaps transactions remained unchanged from the previous month and it was estimated at $0.01 billion.
- The average exchange rate of the naira to the US-dollar, at the inter-bank segment, was N306.95/US$, representing an appreciation of 0.003%
- The average exchange rate at the BDC segment, at N360.00/US$, depreciated by 0.3% relative to the level at the end of the preceding month.
- At the “Investors” and “Exporters” (I&E) window, the average exchange rate of the naira vis-à-vis the US dollar, was ₦360.74/US$ indicating that naira appreciated by 0.01%.
Numbers Explained: The lower sales of FX in the month of May was as a result of less demand for FX at the inter-bank segment, a 6.3% decline. The reason for the decline may be as a result of low demand for forex at the interbank level, possibly due to the delays, policy, and other bureaucratic issues.
Unlike the interbank segment, demand for FX surged at the BDC segment. This means that the Central Bank had to increase its supply of forex to ease pressure on the Nigerian Naira. This reflected in the depreciation of the exchange rate on this segment, signifying a surge in the demand for FX for the month under review.
On the other hand, the fragility of Nigeria’s exchange rate system was further established as the Central Bank increased the supply of forex to the all-important I&E window where foreign investors trade. Accordingly, the naira exchange rate appreciated by 0.01% in the I&E segment in the month, indicating strong stability in the segments likely occasioned by an oversupply of FX by the Central Bank.