The gradual increase in the price of oil as well as the naira-yuan swap deal if completed would reduce the demand pressure on the foreign exchange, analysts in the financial services sector have said.
ICE Brent crude oil price climbed by 2.17 percent to $44.73 a barrel as of Thursday, April 21, while OPEC’s reference basket price increased week-on-week by 3.97 percent to $40.11 a barrel – the highest since December 11, 2015.
“We anticipate sustained stability in exchange rate amid increase in global crude oil prices,” analysts at Cowry Asset Management said. This they said would enhance the apex bank’s capacity to meet demand at the official forex market, thereby reducing pressure at the alternative markets.
President Muhammadu Buhari and Godwin Emefiele, governor of Central Bank of Nigeria (CBN), last week signed a currency swap deal with the Industrial and Commercial Bank of China Limited, with the aim of strengthening the naira against the dollar.
Consequently, analysts expect relative calm to continue at the foreign exchange market following the currency swap deal.
“Although, the comprehensive details of the yuan/naira currency deal remain unavailable, we believe completion of the transaction has the potential of reducing the dollar demand pressure, especially for imports from China. This is likely to rein in speculative pressures in the FX market in the interim,” Ayodeji Ebo, head, investment research, Afrinvest Securities Limited, said.
The CBN is still unable to adequately meet dollar demands as the apex bank continues to refund Deposit Money Banks (DMBs) for huge volume of unfulfilled bids at the weekly FX auctions, Ebo noted. The impact of the FX unavailability is being felt across sectors, especially the petroleum sector as difficulties with importation of refined crude continues to adversely affect economic output. Liquidity in the financial system has also been fluctuating widely with a feedback on market rates.
However, speculative pressures remain relatively passive in the foreign exchange market, hence the stability in exchange rates at all segments of the FX market, though the wide spread between the official rate and parallel market rate remains. The official naira/dollar rate at the official segment of the market stayed unchanged at N197/$1, while the interbank rate remained at N199.50/$1. The Bureau-de-Change segment of the market maintained the stability observed in recent weeks as the naira traded at N322/$1 from Monday till Wednesday, and then appreciated to N320/$1 by Thursday.
