The exchange rate at the parallel market remained stable for the second consecutive day closing at N472/$1 on Wednesday, July 22, 2020. However, on the officially recognized NAFEX market, the forex turnover was down again by 59.1% while the exchange rate also remained stable closing at N388.17/$1.
Parallel Market: At the black market where forex is traded unofficially, the Naira remained stable closing at N472 to a dollar on Wednesday, according to information from Nairametrics FX tracker. Nairametrics collates parallel market exchange rates as far back as 2017. The parallel market also caters to forex trades through wire transfers especially for buyers who cannot fulfill their dollar demands at the I&E window or the SMIS window. Exchange rate for wired transfer is often at a premium to the black market rate.
NAFEX: The Naira also remained stable against the dollar at the Investors and Exporters (I&E) window on Wednesday, closing at N388.17/$1, this the same rate that was reported on Tuesday, July 21. The opening indicative rate was N388.65 to a dollar on Wednesday. This represents a 15 kobo drop when compared to the N388.50 to a dollar that was recorded on Tuesday.
Exchange rate disparity: The exchange rate disparity between the official NAFEX rate and back market rate still remained widen on Wednesday and is still a whopping N84. Nigeria maintains multiple exchange rates comprising the CBN official rate, the BDC rates, SMIS, and the NAFEX (I&E window).
Nairametrics reported a few weeks ago that the government had set plans in motion to unify the multiple exchange rate in line with requirements from the World Bank. Nigeria is seeking a world bank loan of up to $3 billion. The country has been under pressure from the International Monetary Fund and the World Bank for currency reforms.
Meanwhile, forex turnover at the Investor and Exporters (I&E) window recorded a further decline on Wednesday, July 22, 2020, as it dropped by 59.1% day on day. According to the data tracked by Nairametrics, forex turnover decreased from $29.77 million on Tuesday, July 21, 2020, to $12.17 million on Wednesday, July 22, 2020.
Nairametrics had reported that the forex turnover at the NAFEX window where investors and exporters trade forex was about $1.57 billion between June 2020 and July 17, 2020, which falls short of demand according to reports. This is according to the daily market turnover data tracked from the website of the FMDQOTC within the last few weeks. The forex turnover has averaged $47 million over the last 32 days.
The volatility of the foreign exchange market is fueled by low forex inflow and the activities of currency speculators who are encouraged by the widening gap between the official rate and the parallel market rate.
The data from the Central Bank of Nigeria (CBN) shows a decline in the external reserve as it fell from $36.57 billion on June 3, 2020 to $36.08 billion as of July 17, 2020. The declining external reserve reduces the capacity of the CBN to intervene in the forex market, thereby putting more pressure on the market.