CBN Hints on FX Convergence around NAFEX rate, Put backlog at $2.5bn

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CBN Hints on FX Convergence around NAFEX rate, Put backlog at $2.5bn
Godwin Emefiele, CBN Governor

CBN Hints on FX Convergence around NAFEX rate, Put backlog at $2.5bn

The Central Bank of Nigeria hints on FX Convergence around Nigerian Autonomous Foreign Exchange (NAFEX) rate, says the nation’s external reserve remains substantial to service obligations.

However, the apex bank estimated FX backlog at $2.5 billion.CBN Hints on FX Convergence around NAFEX rate, Put backlog at $2.5bnThough, the nation’s external reserves continue to hover around $36 billion.

Recently, the CBN Governor, Godwin Emefiele, at a Global Investor Forum hosted by Citi, hinted at the possibility of convergence of FX rates around the NAFEX rate.

The Governor, in response to questions on illiquidity in the NAFEX market and demand backlog, noted that external reserves remain substantial to service obligations.

“The size of the demand backlog is estimated at US$2.5 billion by the CBN, although independent estimates put it at a much figure”, Chapel Hill Denham said.

Nonetheless, the CBN Governor noted that demand would be met in an orderly fashion while awaiting a recovery in oil price.

Meanwhile, analysts noted that the World Bank has approved Nigeria’s request for US$750 million power sector loan, expect this would help the CBN to meet demands.

The country is also in talks with the lender for US$2.5 billion.

Of this, US$1.5 billion is expected to be channeled to Federal Government while US$1 billion will be for states as budget support facility.

Analysts said the strong support from multilateral lenders should aid the ability of the apex bank to meet official FX demand for debt service obligations and other priority needs.

However, foreign portfolio inflows are unlikely to resume until the FX backlog is cleared, and the spread between the official and parallel market FX rates narrows, says Chapel Hill Denham.

In a related development, the naira to dollar rate strengthened by 4bps week on week to ₦386.33 at the Investors & Exporters window, as liquidity pressures eased markedly.

This came as average daily turnover expand by 2.15x week on week to US$64.77 million.

Analysts at Chapel Hill Denham highlight that the currency pair also weakened by ₦5 or 1.09% wow to 460 in the parallel market.

Exchange rate moved from a low of ₦453.00 within the week, as demand pressures remained amidst thin supply.

The local currency was unchanged at the official and SMIS windows at ₦361.00 and ₦386.50 respectively.

CBN Hints on FX Convergence around NAFEX rate, Put backlog at $2.5bn

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