Large Exchange Rates Gap Rubbishes Naira Devaluation
The large and widening exchange rates (FX) gap between official and parallel markets has rubbished the recent devaluation of the Nigerian local currency, the naira. The fact that it is more predictable that the naira will fall the next day at the official market continues to push demand to parallel market.
Exchange rates at the Investors and Exporters window and open market continue to diverge as Nigeria battles FX shortage, though major industries depend heavily on imports to further production activities.
Following a ban placed on 41 items to access forex from the apex bank and subsequent addition, Nigeria officially channelled demand toward bureaux de change operators where US dollars and other bellwether currencies trade freely.
For parallel market operators, foreign currency demand remained strong despite the monetary authority’s decision to stop FX sales to operators under the suspended governor of the Central Bank, Godwin Emefiele, who cited terrorism financing and other market infractions.
After long days of rigmarole, the CBN finally yielded to a call to devalue the local currency in June, a move that was influenced majorly by President Bola Tinubu’s post-presidential election reform.
For more than 133 million Nigerians who are multidimensional poor, the authority has been unable to answer questions on how the devaluation benefits the people.
Data from FMDQ showed that the Nigerian Autonomous Foreign Exchange Fixing (NAFEX) rate traded within the range of N588-N807 per United States dollar but closed at N736.6 on Friday.
This points towards an appreciation of +0.5% or N3.8 week on week, Coronation Research said in its update. In the forwards market, forex traded within the range of N799.4-N799.9, according to analysts.
Naira appreciated by 1.4% for the forward contract covering 1 month to close at N780.8 and in the 3-month contract, fx appreciated by +1.6% to close at N799. “Based on our channel checks, we note that in the parallel market, the Naira closed at an average of N930 on Friday”, Coronation Research said in its market note.
Analysts said the gap between the NAFEX and the parallel market rate is 26.3%. According to data from FMDQ, NAFEX turnover decreased by 44% or USD349.5 million week on week to USD445.6 million on Friday.
The NAFEX window recorded an inflow of USD118.5 million with the CBN accounting for 29.5%, foreign portfolio investors (FPIs) accounting for 3.8%, non-bank corporates accounting for 39.1%, exporters accounting for 17.7%, and others accounting for 9.9%.
While global oil prices surged, Nigeria’s external reserves to USD33.4 billion as CBN notified the market about a plan to settle FX backlog worth about $2.5 billion. #Large Exchange Rates Gap Rubbishes Naira Devaluation
