The Investor and Exporter Window where forex is sold officially has recorded a cumulative turnover of $9.5 billion over the past 10 weeks since September 1st.
This huge uptick in forex turnover means that by November month-end, the market would have seen a turnover of $10.8 billion in three months between September to November 2021 (i.e., a monthly average of $3.6 billion). Nairametrics maintains a record of forex turnover published daily by the FMDQOTC.
Specifically, in September the daily average forex turnover increased to $199.7 million and October was also a daily average of $199.5 million.
- These massive spikes in turnover to a daily average of $200 million compares to the paltry $62.3 million daily forex average for January to April (i.e., over 320% increase), as well as the $140 million daily average for May 2021 to August 2021 (over 140% increase).
- Coincidentally, in September, as the Central Bank was increasingly intervening in the IEFX window thus improving daily FX turnover, it was also clamping down on the FX news curating website abokiFX with an alleged accusation of manipulating forex rates.
On a monthly basis, the total FX turnover in September was $4.395 billion whilst October was $3.791 billion and November thus far is already $1.328 billion in 2 weeks. These are remarkable monthly turnover numbers compared to prior periods.
- For context, the $9.5 billion over the past 10 weeks is higher than the $7.95 billion across five months between January and May this year at the I&E window.
Notably, as the average daily turnover has increased, we also noticed that since October 26th, 2021 the highest rate for IEFX transactions has remained at N444 every trading day. Whilst the market has closed at between N414 to N415.
- Meaning the CBN and large FX suppliers appear unwilling to settle FX transactions higher than N444 and the market is still being heavily influenced to close at a targeted range.
- In other words, a semblance of a managed float, albeit requiring significant intervention from the CBN.
Why the increase in forex turnover?
We believe the spike in forex turnover recorded at the I&E window is connected to the recent surge in Nigeria’s forex external reserve. Specifically, the increase in external reserves coincides with over $4billion in external loans through Eurobond sales, as well as, concessionary loans from the world bank.
- Nigeria’s external reserve blew past $35 billion in early September and crossed the $40 billion mark by mid-October. Nigeria currently has about $42 billion in external reserves, the highest since August 2019.
- Furthermore, some analysts who spoke to Nairametrics suggest the stronger reserve has given the Central Bank a war chest, albeit temporary to defend the naira at least till the end of the year. This perhaps explains why we are seeing a surge in forex turnover at the I&E window.
Why does this matter?
A surge in forex turnover at the Investor and Exporter (IEFX) window has a direct impact on the foreign exchange market.
Firstly, an FX supply surge helps meet large ticket demand from businesses that would otherwise have gone to the parallel market to meet their transaction needs.
Consequently, if demand is being met at the official window, this reduces the rates at the parallel market thus crashing parallel market rates premium as was recently experienced.
- Specifically, the exchange rate between the naira and dollar strengthened last week, rising to as high as N535/$1 from the N570/$1 traded two weeks earlier.
- A recent survey of black-market operators suggests the exchange rate was trading between N540-N550/$1 depending on who you are buying from.
Secondly, an FX supply surge helps the CBN’s drive for price stability and fight inflation. Especially as prices for eligible imported goods and services are being met at a subsidized rate at the IEFX window compared to if corporates had to source from the parallel markets.
The recent strengthening of the naira versus the dollar was a pleasant surprise to a lot of people. Considering that some of the factors that led to the rapid depreciation experienced in September still existed and is a welcome relief to businesses, even if it is on a temporary basis.