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Forex market liquidity drops by $700m in July, as LCCI calls for more CBN intervention

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Toki Mabogunje, President LCCI

Forex market liquidity at the Investors’ & Exporters’ (I&E) window recorded a 6.64 percent drop in the month of July, data posted at the FMDQ Securities Exchange show.

According to the data, a total of $2.31 billion was traded in the month of July 2021, a $700 million drop compared with $3.01 billion in the preceding month of June 2021.

The decline in the market turnover was as a result of the level of transaction carried out by investors during the period at the Investors and Exporters (I&E) forex window.

The Central Bank of Nigeria (CBN) had also promised to reduce its intervention in the dynamics of the market.

A decision analysts at FSDH believe will help boost the confidence of investors and improve Nigeria’s foreign reserves.

“In the first quarter of 2021, there was a change in the scale of CBN’s intervention in the I&E window. We observe the limited inflow from the CBN in the I&E window. The decline in overall inflow into the market was largely driven by over a 90 per cent drop in CBN interventions. If sustained, perhaps, this signals a breakaway from the heavy interventionist role of the apex bank. This could improve reserves position and boost market confidence.,” FSDH noted in one of its report.

READ ALSO: Naira depreciates across forex market segments after resumption from yuletide holiday

However, Toki Mabogunje, president of the Lagos Chamber of Commerce and Industry (LCCI), believes otherwise.

Reacting to CBN adoption of Nafex window, she said that the FX market requires more Central Bank interventions to increase liquidity, which will attract foreign investors.

“While CBN has adopted the Nigerian Autonomous Foreign Exchange Rate (NAFEX) rate as the official rate in the gradual transition to a unified exchange rate system, the currency market is still beset with persisting liquidity challenges evidenced by wide premium between the NAFEX and parallel market rates.

“In fact, there is a need for CBN to scale up its intervention efforts and roll out more friendly supply-side policies to boost liquidity in the market,” she added.

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