Naira Begins Smooth Ride as CBN Seeks FX Transparency
The naira bulls have begun to gather again with the prediction that the exchange rate will trend positively should Nigeria maintain its drive to boost FX liquidity in the currency market.
The exchange rate experienced a huge appreciation in April when the monetary authority provided back-up support across the informal and parallel markets, which was later withdrawn. With the re-introduction of the retail Dutch Auction System, some analysts said the naira has seen a new policy backup needed to trend positively against the dominant US dollar in the foreign currency market.
The exchange rate is expected to recalibrate, riding on the back of the monetary authority’s FX fine tuning mood to curb exchange rate losses, analysts said in a chat with MarketForces Africa. The Apex Bank maintains its search for transparency in the currency market. The Central Bank of Nigeria (CBN) started conducting FX sales based on actual demand.
Currency traders and market analysts have reacted positively to the authority’s decision to switch the FX auction method. The CBN would be selling hard currency on a demand-by-demand basis to FX users to increase transparency, and boost market confidence.
The recent experience showed that the FX boost in the currency market has not been covering ground well enough as buckets of demand backlog quickly consume fresh US dollar injection. Market traders are of the views that FX sales to banks has been insufficient amidst rising demand driven by seasonal foreign payment. In the new week, the CBN sold FX to authorized dealers via the retail Dutch auction system it had previously abandoned.
Data obtained from the FMDQ platform showed that naira appreciated the US dollar by 0.18% to ₦1,593.62 in the official window on Thursday. The recalibration of the exchange rate followed the Central Bank of Nigeria FX sales to boost US dollar liquidity last week and a huge amount sold at the retail Dutch auction on Wednesday.
Some analysts said recent moves by the authority to boost FX liquidity in the market has not impacts exchange rates significantly. The CBN has been consistently selling US dollars in recent past week but naira exchange rate trend has remained negative in the forex markets.
Analysts explain that unmet demand easily soaked up fresh forex injections at the official window, leaving no traces on the exchange rate because demand has been building up ahead of the US dollar supply.
“There is hope naira will recover if the CBN maintains market intervention in successive manners, having claimed the local currency is grossly undervalued”, some experts said in a group chat with MarketForces Africa
To upturn the negative movement and perception about the naira, there’s a need for large FX inflows into FX windows, analysts said. The future of the local currency hangs on reduced import taste of the citizens and its ability to generate more FX receipts from export, LSintelligence Associates said in a research note.
At the alternative FX market for invisible trades, the local currency gained strength against the US dollar for the second day following combative measures introduced recently by the government. On Thursday, however, the exchange rate was flat in parallel as nationwide protests paralyzed business activities in some areas.
Financial technology operators and payments have abandoned the parallel market rate as a benchmark for setting FX payments for their customers, MarketForces Africa findings show. The payment processors have switched to the official rate after narrowing the FX gap between the official and parallel market rates. #Naira Begins Smooth Ride as CBN Seeks FX Transparency Liquidity: Banks Drive Yield Surge with T-Bills Selloffs
