Foreign investors that sold currency securities in the last one month have been unable to repatriate the proceeds to their countries due to persistent dollar scarcity.
Many of the investors cash are trapped in Nigeria’s debt market as dollar liquidity dries up due to a lack of fresh inflows and persistent drop in crude oil prices. Crude oil revenue constitute over 90 per cent of foreign-exchange earnings for Nigeria.
Value of dollar transactions in the Investors’ and Exporters’ (I&E) Forex Window where foreigners buy dollars has dipped from $300 million per day two months ago to $20 million.
The naira has also depreciated past N498.5 to dollar on the one-year non-deliverable forwards markets following the continued drop in crude oil prices and consistent dollar scarcity.
One-year dollar/naira non-deliverable forwards stood at N498.5 points, up from previous close of N492.4. The naira saw one its biggest hit against the dollar after a historic oil price rout pushed United States crude futures below zero.
A forward market is an over-the-counter marketplace that sets the price of a financial instrument or asset for future delivery. Forward markets are used for trading a range of instruments, especially at the foreign exchange market.
Foreign reserves have fallen 12 per cent this year to $33.8 billion, raising concerns on the sustainability of the weekly. The naira has weakened 11 per cent to N425 to dollar in the parallel market since March 20 when CBN stopped foreign exchange interventions.
Analysts had tipped the naira to depreciate by about 20 per cent in the parallel market by next year as the impact of falling crude oil prices persists.
According to Bloomberg survey of investors, the local currency may be marked down by up to 20 per cent in 2021.
The survey, it said, the drop in foreign reserves and lower oil prices will probably force the CBN to devalue the naira, seen as one of the world’s most stable currencies by next year.
The stability of the naira against the dollar has continued to spark speculations, with many analysts predicting that the local currency will sooner or later be further devalued after the March 2020 exercise.
The Bloomberg survey of investors and analysts, showed that 10 out of 19 respondents expect the naira to be weakened in 2021, while five predict a mark-down as early as the second half of this year.
The remainder believe the CBN will keep a firm grip on the currency until 2022 or 2023.