Amidst a prolonged dollar shortage in Nigeria's official foreign exchange (FX) market, the Investors' and Exporters' (I&E) forex window showed resilience with a 6.01% gain on Wednesday. The country's FX market has been grappling with a scarcity of dollars due to decreased inflows from oil proceeds, remittances, foreign capital, and other sources.
According to data from the FMDQ, the dollar was quoted at N741.64/$1 on Wednesday, compared to N789.08/$1 quoted the previous day. Tuesday's closing rate at N789.08 per dollar represented a 4.25% loss from the N756.94/$1 rate on Monday.
The daily FX market turnover, reflecting the volume of transactions at the I&E window, marginally increased by 0.17% to $67.33 million on Tuesday from $67.21 million recorded on Monday. Willing buyers and sellers maintained bids as high as N804 per dollar on Tuesday, which was stronger than N830/$1 on Monday but weaker than N799.50/$1 on Friday.
The market auction observed lower bids of N700 per dollar on Tuesday, weaker than N651.00 per dollar on Monday but stronger than N465.00 bid on Friday at the I&E window. In the parallel market, commonly known as the black market, the naira depreciated by 0.57% (N5) as the dollar traded at N875 on Wednesday, compared to N870 on Tuesday and Monday.
Experts pointed out that stabilizing the exchange rate is challenging in the absence of sufficient FX supply. Yemi Kale, partner & chief economist at KPMG Nigeria, mentioned that even speculators are closely watching the supply situation, making it difficult to maintain rate stability. He emphasized the need for increased supply from oil sales and autonomous sources like Foreign Portfolio Investment (FPI), Foreign Direct Investment (FDI), remittances, and export-oriented enterprises.
Unfortunately, confidence in the economy remains low, leading foreign and domestic investors to prefer holding dollar-denominated assets to hedge against inflation and asset depreciation. This high demand and inadequate supply continue to fuel the ongoing dollar shortage. Experts believe that until confidence is restored and steady inflows are observed, the situation is likely to persist.
In the first quarter (Q1) of 2023, FX inflow into the Nigerian economy decreased by 3% quarter-on-quarter (q/q) and 7% year-on-year (y/y) to $17.2 billion, as reported by the Central Bank of Nigeria (CBN) data compiled by FBNQuest.
The current challenges in Nigeria's FX market call for concerted efforts to improve confidence and boost inflows to achieve a more stable exchange rate.
