The average daily volumes traded between banks and clients on Nigeria’s interbank Foreign exchange (FX) market through the FMDQ OTC platform has surged to over $100 million a day as the Central Bank of Nigeria (CBN), pulls back from actively intervening in the markets.
The market between the banks and clients continues to show growing liquidity levels during the last four weeks as turnover for the week ending Aug. 5, 2016 averaged $134.20 million daily, data from the FMDQ website show.
Turnover in the market among the Dealing Member (Banks) reveals that trading between banks is also beginning to improve, further boosting liquidity in the Spot FX market as $87 million was traded for the week ending August 5, 2016.
The inter-bank FX market closed at US$/N332.07 for week ending August 12, 2016.
The CBN continued to effectively perform its role strictly as a market intervention participant, in support of the Nigerian FX market reform and provided liquidity into the market to the tune of circa $148mm, for the week ending August 5, 2016.
“The Central Bank of Nigeria (CBN) is no longer intervening like before and has largely withdrawn from the spot market, with volumes now mostly generated from other sources,” Dipo Odeyemi, senior Vice President Market Operations and Technology FMDQ said.
The CBN released a new framework for the operation of the Nigerian foreign exchange market in June, and in a bold move opted for a free-floating FX market structure helping to bring liquidity to the largely frozen interbank FX market.
Primary Market Dealers were licensed with a single FX market (the interbank market); where bids and offers are matched using Reuters and FMDQ platforms.
“The float of the naira to a more flexible foreign currency regime in June has eased pressure on foreign reserves,” Vice President Yemi Osinbajo said last week. “I believe … there will be an increase in supply of foreign exchange,” he said.
The CBN held $25.9 billion in gross reserves as at August 8, 2016, according to data on its website.
In the OTC FX Futures market, trades between the banks and their clients amounted to a total of circa $124 million for the week ending Aug. 5, 2016, while turnover between the CBN and banks for the same period stood at $204 million.
Naira-Settled OTC FX Futures contracts are essentially non-deliverable Forwards (NDF) contracts where parties agree to an exchange rate for a predetermined date in the future, without the obligation to deliver the underlying US Dollar (notional amount) on the maturity/settlement date.
Upon maturity, both parties are assumed to have transacted at the Spot FX market rate.
Since these contracts are cash- settled in naira, there is no physical delivery of the underlying currency to the counterparties, in this case the CBN and the Authorised Dealers.
PATRICK ATUANYA
