The Central Bank of Nigeria sold a total of $9.4 billion worth of foreign exchange on the foreign exchange market during the first 6 months of 2022. This compares to $5.8 billion sold in the first half of 2021.
This is according to the data published by the main bank in its semi-annual economic report.
The central bank of Nigeria intervenes in the foreign exchange market through spot and forward sales at investor and exporter windows, directly to SMEs and through their Small and Medium Enterprises (SMEs) and Interbank Market Intervention Sales. Secondary (SMIS).
Why you need to know: The central bank sells currencies as part of its intervention policy in the foreign exchange market.
- He does this to control the price of the currency by selling more when he needs a stronger naira or buying when he thinks the naira is strong.
- However, further currency intervention by the central bank suggests that the main bank is burning Nigeria’s reserves that may have been used for other purposes.
- It also reveals how much liquidity there is in the official forex market, which helps to determine whether parallel market prices are overvalued or need further devaluation.
FX Sales Breakdown: According to the central bank, it sold a total of $9.4 billion in the first half of the year with 47.5% or $4.38 billion sold through the sports market. The media that he sold at the current price of the day.
- Another $4.3 billion was sold through forward sales representing 52% of total sales.
- The bank also revealed that the breakdown of spot sales includes $2.07 billion sold at the Investors and Exporters (I&E) window, $856.81 million for invisibles,
- Another $834.74 million was sold to Small and Medium Enterprises (SMEs) and Interbank Sales of Secondary Market Intervention (SMIS) totaled US$622.92 million
In addition to selling, the central bank He also buys forex, saying he bought about $1.3 billion in the first half of the year.
- “In contrast, the Bank purchased US$1,325.43 million during the review period, resulting in a net sale of US$7,903.83 million” stated.
- Likewise, in the forward segment the sum of US$ 7,000 million matured, while at the end of June 2022 US$ 5,800 million were outstanding.
Trade in the I&E window: The main bank also provided transaction details and the importer and exporter window where forex is officially sold.
- 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 to US$10.7 billion in the corresponding period of 2021.
- This suggests that more currency transactions took place in the first half of the year compared to the same period last year.
- The central bank also revealed that it posted transaction turnover of just $213.3 billion as of the end of June 2022. It plans to generate around $200 billion in export revenue.
Our interpretation: The demand for Nigerian foreign exchange at the official investor and exporter window continues to be largely serviced by the central bank.
- Although, at $9 billion, it’s supporting the market at the same level it did in the Covid year of 2020, it’s still not enough to meet demand.
- This is reinforced by the exchange rate disparity between the official and parallel market exchange rates.
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