In order to support the naira in the first half of the year, the Central Bank of Nigeria (CBN) pumped a total of $9.229 billion into the official foreign exchange (FX) market.
The sum is $3.4 billion ($58.3 percent) more than the $5.83 billion the apex bank intervened in the market for during the same period in 2021.
The amount consists of $4.389 billion in spot sales and N4.839 billion in forward sales, according to information from the Financial Markets Department’s H1 2022 activity report.
A further analysis of the spot portion of the transaction revealed that 856 million or 19.5% of the total amount traded, or $2.075 billion, was sold through the Investors and Exporters (I&E) window.
The amount spent on requests for invisible trade increased dramatically, by a whopping 154 percent, from the $337 reported in the same period. This indicates that medical tourism, higher education, and other commodities on the invisible basket are putting increasing pressure on the market.
While inter-bank Secondary Market Intervention Sales (SMIS) collected $622.92 million from small and medium-sized businesses (SMEs), they each received $834.7 million, or 19.01 percent (an equivalent of 14.19 per cent).
“The naira-settled over-the-counter (OTC) foreign exchange futures were introduced in 2016 to provide a platform for market participants to hedge foreign exchange risk. In the first half of 2022, the sum of $1.437 billion was traded in the futures market while $3.001 billion matured and $3.768 billion remained outstanding. In the corresponding period of 2021, a total of $3.298 billion was traded in the market, while $6.987 billion matured and $4.251 billion was outstanding at end-June 2021,” the report disclosed.
The naira has suffered this year, with a roughly one-fourth loss in value against major currencies so far (YTD). Even Nevertheless, the official exchange rates have mostly held steady.
For instance, the naira-dollar exchange rate has fluctuated within a narrow band this year, between N410 and N450.
After the recent increase, the naira declined to N880/$, valuing the premium on the black market at approximately N440 per dollar, or 100%. Experts have recommended for a gradual liberalization of the official window to close the gap and blamed the widespread market arbitrage for the pervasive rent-seeking.
The CBN spent $1.325 billion in H1 2022 versus selling N9.229 billion. With the net sale remaining at $7.9 billion, additional funding will be needed.
Intriguingly, the research showed that in the first half of 2022, the daily foreign exchange rate in the I&E window, also known as the Nigerian Autonomous Foreign Exchange Market (NAFEX), increased by N3/$ or 0.72 percent.
The currency rate began trading at N417/$ in January 2022 and ended the month of June 2022 at N414/$. The average exchange rate for the month of January opened at N416.03/$ and ended at N415.64/$ in June 2022, an increase of 0.09 percent.
However, given that the local currency is currently trading at N445/$ at I&E window, the naira’s impressive performance at the official market on H1 could not be sustained throughout the year.
