Naira strengthened against the US dollar last week to a 2-month high of N535/$1 at the black market, thereby reducing the gap between the parallel and the official rates; an uptick that was driven by a significant drop in demand for FX at the black market.
The exchange rate, which had hovered around N570 to N572 to a dollar since September, gained over 600 basis points to N535/$1 in the early hours of Thursday, last week as BDC operators hinged it to improved forex liquidity and decrease in demand. It currently trades between N545-N550 at the black market depending on who you buy from.
Meanwhile, the gain at the black market has been attributed to a couple of factors, ranging from crude oil rally, boost in external reserves, increased corporate loans from the international debt market, workers remittances amongst others.
A major boost in the country’s forex reserve via the $4 billion Eurobond raised in September has served as a significant buffer for the apex bank to continue intervening in the official forex market.
Since Nigeria secured the $4 billion Eurobond on September 22nd, a sum of $6.59 billion has been traded on the floor of the I&E window. This is a significant increase compared to $5.62 billion traded in the 36 days preceding the fundraise, implying more funds injected into the market.
As a result of the Eurobond inflow and $3.35 billion direct allocations, approved by the International Monetary Fund (IMF), Nigeria’s reserve recorded a boost of $5.05 billion in October, following a $2.76 billion gain recorded in the prior month. The nation’s foreign exchange reserve is now well above the $40 billion threshold.
Similarly, just as Nigeria moved to the international debt market for funds, Nigerian corporates also raised notable debt fundings from the international market as well. Fidelity Bank, a tier-2 bank, in October, successfully raised $400 million through its 5-year Eurobond issuance.
Another major company in the country with a recent successful Eurobond issuance is Access Bank, after raising $500 million unsecured Eurobond from major global investors from the United States and Europe, amongst others.
These corporate Eurobond issuances indicate more forex liquidity in the country and reduced demand for FX from the parallel market. It is also worth noting that, some Nigerians have stashed dollars during the decline four months ago when the CBN placed a ban on the sales of forex to BDC operators in the country.
