The Central Bank of Nigeria sold a total of $9.4 billion in forex in the foreign exchange market first 6 months of 2022. This compares to $5.8 billion sold in the first half of 2021.
This is according to data released by the apex bank in its half-yearly economic report.
Nigeria’s central bank intervenes in the foreign exchange market via spot and forward sales at the investors and exporter windows, directly to SMEs and via its Small and Medium Enterprises (SMEs) and inter-bank Secondary Market Intervention Sales (SMIS).
Why you need to know: The central bank sells forex as part of its policy of intervention in the foreign exchange market.
- It does this to control the price of forex by selling more when it needs a stronger naira or purchasing when it believes the naira is strong.
- However, a higher forex intervention by the central bank suggests the apex bank is burning through Nigeria’s reserves which may have been used for other purposes.
- It also reveals how much liquidity is in the official forex market which helps determine if the parallel market prices are over-depreciated or need further devaluing.
Breakdown of FX sales: According to the central bank, it sold a total of $9.4 billion in the first half of the year with 47.5% of it, or $4.38 billion sold via the sports market. This means it sold at the prevailing price on the day.
- Another $4.3 billion was sold via forward sales making up 52% of total sales.
- The bank also revealed the breakdown of the spot sales included $2.07 billion sold at the Investors’ and Exporters’ (I&E) window, $856.81 million for Invisibles,
- Another $834.74 million was sold at the Small and Medium Enterprises (SMEs) and inter-bank Secondary Market Intervention Sales (SMIS) accounted for US$622.92 million
Apart from selling, the central bank also purchases forex, confirming that it bought around $ 1.3 billion in the first half of the year.
- “Conversely, the Bank purchased US$1,325.43 million during the review period, which resulted in a net sale of US$7,903.83 million” it stated.
- In addition, the sum of US$7.0 billion matured in the forward's segment, while US$ 5.8 billion was outstanding in end-June 2022.
Trade on the I&E Window: The apex bank also provided details of transactions and the importer and exporter window where forex is sold officially.
- Market Turnover at the Investors’ and Exporters’ Window In the first half of 2022, the turnover of transactions at the I&E window amounted to $16.1 billion, compared with US$ 10.7 billion in the corresponding period of 2021.
- This suggests more forex transactions occurred in the first half of the year compared to the same period last year.
- The central bank also revealed that it recorded a transaction turnover of just $213.3 billion in end-June 2022. It plans to raise about $200 billion in export proceeds.
Our interpretation: Nigeria’s forex demand in the official investors and exporter window is still largely catered for by the central bank.
- Though, at $9 billion it is supporting the market at the same level as it did in the Covid year of 2020, it is still not enough to meet demand.
- This is buttressed by the exchange rate disparity between the official and parallel market rates..
