By David Akinmola
The Central Bank of Nigeria (CBN) injected a total of $9.229 billion into the official foreign exchange (FX) market to defend the naira in the first half of the year.
The amount is 58.3 per cent or $3.4 billion higher than the $5.83 billion intervention by the apex bank in the market in the 2021 corresponding period.
According to data obtained by the Financial Markets Department H1 2022 activity report, the amount comprises $4.389 billion in spot and N4.839 billion in forward sales.
A further breakdown of the spot component of the transaction showed that $2.075 billion or 47.3 percent was sold at the Investors’ and Exporters’ (I&E) window while 856 million or 19.5 percent went to invisible items.
The amount spent on requests for invisible trade was a steep 154 per cent jump from $337 reported in the corresponding period, suggesting the rising pressure on the market from medical tourism, education, and other items on the invisible basket.
Small and medium enterprises (SMEs) received $834.7 million or 19.01 percent just as inter-bank Secondary Market Intervention Sales (SMIS) took $622.92 million (an equivalent of 14.19 percent).
“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 $4.251 billion was outstanding in end-June 2021,” the report disclosed.
The naira has come under pressure in the year, losing about one-fourth of its value against major currencies year-to-date (YTD). But the official exchange rates have remained relatively stable.
For instance, the naira-dollar exchange has traded at a close range of between N410/$ and N450/$ in the year.
Following the recent increase, the naira fell to N880/$, taking the premium on the black market at about N440 per dollar or 100 percent. Experts have attributed the persistent rent-seeking to the wide market arbitrage and called for a gradual liberalisation of the official window to close the gap.
In H1 2022, the CBN purchased $1.325 billion as against N9.229 billion sold. That leaves the net sale at $7.9 billion to be funded from other sources.
Interestingly, the report revealed, the daily foreign exchange rate at the I&E window, otherwise referred to as the Nigerian Autonomous Foreign Exchange Market (NAFEX), appreciated by N3/ $ or 0.72 percent in the first half of 2022.
The exchange rate opened at N417/$ in January 2022 and closed at N414/US$ at the end of June 2022. Every month, the average exchange rate opened at N416.03/$ in January and closed at N415.64/$ in June 2022, representing 0.09 per cent appreciation.
The impressive performance of the naira at the official market on H1 could not, however, be sustained throughout the year with the local currency currently trading at N445/$ at the I&E window.
