Naira Records Demand Pressure on I&E Forex Window

Nume Ekeghe

The exchange rate between the naira and the United States dollar on the Investors and Exporters’ (I&E) foreign exchange (forex) window recorded an unprecedented sale Friday, as it depreciated to N632/$ on that day due to demand pressure before it closed at N464.51/$1.
The market at the end of last Friday’s trade recorded a total of $144.72 million transactions. The highest spot rate for the day was N632/$1 while the lowest was N410/$1.

Data from FMDQ showed that the opening sale price for Friday was N463.75/$1, but it declined marginally by 0.18 per cent to close at N464.51/$1.
On the other hand, THISDAY’s finding showed that the parallel market (black market) last week also recorded demand pressure as the naira exchange rate fell from about N735/$1 last Monday, to N772/$1 as of yesterday.
A currency dealer who spoke to THISDAY on condition of anonymity, said the depreciation was likely to continue as persons suspected to be politicians were making more demands for the greenback.

Also speaking at the i-invest 5th anniversary in Lagos, the Founder of Nairametrics, Ugo Obi-Chukwu, argued that there was likelihood of devaluation with the naira officially trading as low as N632 on the official I&E window
He said: “The I&E window has a high and closing rate and because it is a market, people can buy at a high price and people can buy at a low price and then at the end of the day they have a closing price.

“But if you look at the FMDQ website on Friday, someone did buy at N632. So, what does that tell you? It is indicative of where the official rate is likely going to which is not too far from the black-market rate.”

Analysts at Cowry Research noted that demand pressure was observed in the forex market as various users, including manufacturers, importers, students, and travellers, embark on their search for alternative sources.
At the Interbank Foreign Exchange Forward Contracts market, the spot exchange rate remained unchanged as it closed at N462 to the dollar.
“In our analysis of the naira/ dollar exchange rate at the weekly Naira FX Forward Contracts Markets, the naira reigned with positive appreciations across all forward contracts tenor.

“Consequently, the naira strengthened by +1.45 per cent, +4.29 per cent, +6.22 per cent, +9.15 per cent and +6.27 per cent w/w to close at N470.76/$1, N478.91/$1, N485.78/$1, N506.61/$1 and N538.72/$1 at all tenor contracts respectively,” the Lafos-based research and investment company stated.
It anticipated that this week, “the naira will trade in a relatively calm band across various market segment barring any market distortion and as the apex bank continues its weekly foreign exchange market intervention to defend the value of the naira.”

For their part, analysts at Cordros Research stated: “Nigeria’s forex reserve shed the previous week’s gain, as the gross reserve position declined by $16.25 million week-on-week to close at $35.18 billion as of May 23.
“The naira depreciated by 0.3 per cent to N464.51/$ at the I&E window. On activity levels, the total turnover, May 25 at the I&E Window fell by 13.7 per cent week-to-date to $557.31 million, with trades consummated within the N449.92 – N632.00/$ band.
“We believe the forex liquidity issues will remain over the short-to-medium term as we do not see any positive signal that denotes an improvement in forex supply relative to the pre-pandemic levels.

“Moreover, considering the tepid accretion to the reserves given low crude oil production and elevated petrol under-recovery costs, foreign portfolio investments which have historically supported supply levels in the I $E Window will be needed to sustain FX liquidity levels in the medium to long-term.”