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Forex turnover in I&E falls 35% to $13.11bn in H1’23

•Naira depreciates by 81%
•External reserves falls 7.7% to $34.22bn
•H2’23 will be better – Analysts.By Babajide Komolafe, Economy Editor & Elizabeth Adegbesan.

The foreign exchange segment of the economy was marked by downward trend in the first half of the year, H1’23 reflected in the 35 per cent, year-on-year (YoY) decline in the volume of dollars traded (turnover) in the Investors and Exporters (I&E) window and 81 per cent, YoY depreciation of the value of Naira as well as 7.7 per cent decline in the nation’s external reserves.

Data from FMDQ showed that turnover in the I&E window fell to $13.11 billion in the first half of the year (H1’23) from $20.23 billion in H1’22.

However, Financial Vanguard findings in the transactions data showed that quarter-on-quarter (QoQ) turnover increased by 1.07 percent to $6.59 billion in the second quarter of 2023 (Q2 ’23) from $6.52 billion in Q1’23.

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But, month-on-month (MoM) turnover declined by 3.5 percent to $2.64 billion in June from $2.55 billion in May.

Consequently, and following the measures introduced by the Central Bank of Nigeria, CBN, on June 14th, 2023, Naira depreciated in the I&E window YoY by 81 per cent to N769.25 per dollar on June 30th, 2023 from N425.05 per dollar a year ago.

Similarly, on MoM, the Naira fell by 65.5 per cent from N464.67 per dollar on May 31st.

In the parallel market, the Naira depreciated YoY by 9.9 per cent to N765 per dollar on June 30th 2023 from N610 per dollar on June 30th 2022. MoM, the naira depreciated by 0.2 per cent from N763 per dollar on May 31st.

External reserves
Following the same downward trend, the nation’s external reserves fell by $2.86 billion or 7.7 per cent to $34.22 billion on June 26th from $37.082 billion on December 30th.The decline in the external reserves according to analysts was driven by lower foreign exchange inflow from crude oil sales and foreign investment.

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The analysts were, however, optimistic that the downward trend in the foreign exchange market will be reversed in the second half of the year, citing the impact of the elimination of multiple exchange rates and the reintroduction of willing buyer, willing seller in the I&E window.

According to analysts at FBNQuest Securities Limited, “The dwindling fortunes of the external reserves mostly reflect minimal accretion from crude oil sales, and to a lesser extent limited inflow of imported capital.

“We expect that the imminent harmonisation of exchange rates, together with the recent elimination of gasoline subsidies, will go a long way to ease the pressures on the gross external reserves.”

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Similarly, analysts at Financial Derivatives Company, FDC, led by Bismarck Rewane, said, “The foreign exchange market will remain volatile in the short term as market expectations continue to drive the demand & supply dynamics. The naira is likely to trade within the band of N656/$ – N795/$ on the I & E window in the short term to medium term.
” In the short term, the external reserve is likely to sustain its depletion as oil prices sustain its losses on fears of weak global demand. However, in the medium term, the reduction in forex restrictions and administrative controls will increase foreign investment inflows as lower currency & convertibility risks improve foreign investor confidence. This will lead to reduced depletion of the foreign exchange reserves”

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