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The Nigerian naira, the local currency, has successfully reversed the losses it incurred throughout August, aided by the unveiling of the central bank’s price verification portal on August 31, 2023. According to data from FMDQ, the naira displayed an appreciative gain of 4.8%, reaching N738.18 against the United States dollar (USD) within the Investors and Exporters FX window.
The exchange rate for the local currency had settled at N775.34 on the previous Tuesday, with the spot price having surpassed N803 per USD at the official window following the June devaluation.
FX traders have identified a significant obstacle to exchange rate convergence in the scarcity of foreign currency inflows, encompassing both hot money and direct investments, into the domestic economy.
As a consequence, the Central Bank of Nigeria’s supply of foreign exchange to support the naira at the official window for investors and exporters has remained limited and is continually decreasing, despite the regulatory authority’s commitment to intervening in the FX market as required.
Regrettably, Nigeria’s gross external reserves have stayed subdued due to reduced foreign earnings from oil exports. Although the oil market is relatively bullish compared to the benchmark oil price employed in preparing the current year’s budget, the nation continues to grapple with fulfilling its daily quota as stipulated by the Organisation of the Petroleum Exporting Countries (OPEC).
On Wednesday, Brent crude witnessed a 0.57% surge to reach $85.98 per barrel, while WTI crude experienced a 0.89% uptick to hit $81.88 per barrel. Oil futures soared beyond $81 per barrel on the same day, marking the fifth consecutive session of gains, buoyed by EIA data indicating a larger-than-anticipated weekly drawdown in crude inventories.
Despite the global oil market’s positive momentum, Nigeria’s external reserves remained below the $34 billion mark, leading investment firms, both domestic and international, to reassess the country’s net position.
In the parallel market, the demand for foreign currency moderated after a surge in speculative demand had pushed the exchange rate to nearly N1000.
With speculators cautiously observing the potential impacts of the CBN’s price verification portal on the market, the parallel market exchange rate stabilized at N920.
Recalling the CBN’s circular dated August 17, 2023, the central bank introduced its Price Verification System Portal for importers to generate Price Verification Reports for all Form M applications. This new system requires FX users to create dedicated accounts to access FX from the official window.
Local deposit money banks affirmed that moving forward, this report will serve as a prerequisite for submitting Form M applications through the CBN Single window. Bank officials informed MarketForces Africa that this directive will be effective from Thursday, August 31, 2023, and the portal will go live on the same day.
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