CBN’s dollar sales seen rising amid currency pressures
The Central Bank of Nigeria is expected to increase its dollar sales as currency pressures are likely to persist, analysts at Financial Derivatives Company Limited, led by Mr Bismarck Rewane, have said.
The Nigerian currency has continued to wobble against the dollar in recent months at the parallel market and the investors’ & exporters’ window of the foreign exchange market.
According to the FDC Monthly Economic Update, the Nigerian forex market is segmented with multiple exchange rates, and the most important rate being the I&E window.
“No less than 55 percent to 60 percent of Nigerian forex transactions are traded at this window. The CBN and most exporters and investors use this window. It serves as not only a source of price discovery but also a barometer for measuring potential and actual CBN intervention in the market,” the analysts said
They noted that at the parallel market, the naira appreciated by 0.42 percent to close at N478/$ on February 17.
“Conversely, the IEFX rate has depreciated by approximately four percent to N410/$ so far in 2021. This signals currency convergence to bring the parallel market and IEFX rates closer,” the analysts said.
“Currency pressures are likely to persist as the level of general economic activities pick up. The CBN is expected to increase its dollar sales and the ongoing convergence at the forex market would continue around the IEFX window,” they added.
They said currency volatility would continue to heighten import costs and in turn increase the price of imported goods in the near term.
Gross external reserves slipped by 1.98 percent to close the review period at $35.58bn from $36.3bn at the end of January, the analysts said.
They said, “The country’s import cover is now down to 9.55 months from 9.74 months. The decline in external reserves was partly driven by the CBN increasing its efforts to support the naira.
“Gross external reserves are expected to increase on higher oil prices. Brent is currently trading at pre-pandemic levels ($63 per barrel) and this would strengthen the government’s buffers. Higher reserves would boost the CBN’s ability to support the naira in the near term.”
