Exchange Rates Gap Reduced as Naira Crashes
Official and parallel market exchange rates inched closer as the Nigerian naira tumbled despite the apex bank FX loopholes tightening. The supply side remains below heavy FX demand across Nigeria amidst shortage. The Central Bank of Nigeria (CBN) is frantically struggling to upturn the naira fortune.
Data from the FMDQ platform revealed that the Naira registered another weak performance as it depreciated by 4.28%, closing at N1,479.47 per US dollar in the official market.
Again, the local currency depreciated by 0.68% in the parallel market, closing at N1,485 per dollar. This has reduced the spread between official and parallel market rates to less than N6.
The Central Bank continues to implement measures to boost forex liquidity in the market. It has accused local deposit money banks of sharp practices and directed lenders to sell down foreign currency assets holdings to reduce their separate exposure.
On 1 February, the CBN amended prudential requirements, announced in a circular on 31 January, took effect. The amended requirements eliminate commercial banks’ foreign currency long net open position – the difference between the total volumes of long and short positions in foreign currency, including both on- and off-balance sheet exposures.
A long net open position indicates a bank’s foreign-currency assets exceed its foreign currency liabilities, while a short net open position means the reverse, according to Moody’s. Exchange Rates Diverge as FX Supply Sinks 3.5%
Before the amendment, the prudential requirements allowed banks to maintain a short position of up to 20% of shareholders’ funds and a long position of up to 10% of shareholders’ funds unimpaired by losses. Now, the CBN has mandated banks hold 0% long of shareholders’ funds unimpaired by losses.
The forex market backlog has also been settled, though there remains a discrepancy. The CBN estimates that over $2.4 billion of the headline $6.8 billion in foreign exchange forwards are invalid, following the findings of a commissioned forensic audit.
In the global commodity market, Brent crude futures surged to over $80 per barrel on Thursday, while WTI traded above $75 per barrel on Thursday as investors considered the impact of Israel’s rejection of a ceasefire offer from Hamas and unexpected drops in U.S. fuel stocks. #Exchange Rates Gap Reduced as Naira Crashes