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Naira’s decline slows amid ‘unusually low’ forex demand

Naira’s recent downtrend on the parallel market has been halted in the last few days due to an “unusually low” demand for forex, which allowed dollar supply to match demand in that segment of the forex market, according to analysts at Coronation Research.

 

The analysts, who stated this in a report obtained by New Telegraph yesterday, noted that although there is a higher proportion of demand for dollars on the parallel market currently, compared with three years ago, the quantity of forex inflow into that market appeared to have been adequate for the unusually low” demand for forex, thereby stemming the naira’s decline

 

They pointed out that contrary to expectations that the significant absence of dollar supply by the CBN to the NAFEX Market in recent times would push demand to the parallel market, thereby driving down the price of the naira, the local currency had only suffered marginal depreciation.

 

The analysts stated: “Three weeks ago we wrote about the mystery of the parallel exchange rate.

 

Why had the parallel rate not  diverged more from the NAFEX rate(also known as the I&E window and the interbank rate)? “In the absence of significant supply of US dollars from the CBN to the NAFEX market (which was designed in any case to be autonomous and not require CBN support) NAFEX turnover fell in mid-March and remains low.

 

So we would expect demand for US dollars to hit the parallel market, driving down the price of the naira. It has, indeed, but not very much. “The mystery can probably be explained this way: demand for US dollars is unusually low; the parallel market is meeting a higher proportion of US dollars than it did in 2017.”

 

New Telegraph had reported last Wednesday that despite speculation in some quarters that the CBN’s adjustment of the official exchange rate of the naira to N380 per dollar from N361/$1 on August 7 would lead to a further weakening of the local currency across all segments of the forex market, it appears to have been strengthened by the development.

 

Throughout last week, for instance, the naira was stable against the dollar at N475/$1 on the parallel market. In fact, the local currency has also been trading flat against the dollar at the I&E window in the last few days. Specifically, last Friday, the naira closed at N386.00 per dollar compared with the previous day’s N385.83/$1.

 

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