Naira: Analysts Anticipate FX Convergence as CBN Boost Liquidity
There have been moves by the Central Bank of Nigeria (CBN) to boost foreign exchange (FX) liquidity, and analysts have started projecting some sorts of convergence in rates.
The most recent market trend, charts have shown wide disparity with official exchange and parallel market rates.
In the macroeconomic note, analysts said that disparity in foreign exchange rates will shrink as the apex bank boosts liquidity.
In a circular, the CBN revealed plan to begin market intervention on September 7, 2020 as Federal Government of Nigerian announced the resumption of international flight.
In a note, an investment firm, Cowry Asset Limited anticipates that the continue efforts of the CBN to eliminate the unnecessary intermediaries associated with FX transactions; coupled with its move to improve FX liquidity would shrink disparity in rates.
Among the contributing factors to closing widened FX rates include CBN move to stabilise the exchange rate, boost the external reserves and help reduce the upside risk of inflation rate which hit 12.82% in July 2020 will reduce widened disparity in rates.
In the just concluded week, Naira appreciated against the greenback at the Investors and Exporters FX Window (IEW) by 0.09% to close at ₦385.67/$.
However, exchange rate closed flat at ₦381/$ at the Interbank Foreign Exchange market amid weekly injections of $210 million by CBN into the forex market.
The breakdown showed that $100 million was allocated to Wholesale Secondary Market Intervention Sales (SMIS), $55 million was allocated to Small and Medium Scale Enterprises and $55 million was sold for invisibles.
Also, NGN/$ exchange rate remain unchanged at ₦472.00/$ and ₦477.00/$ respectively, at the Bureau De Change and the parallel (“black”) market respectively.
Elsewhere, the Naira/$ exchange rate appreciated further for most of the foreign exchange forward contracts.
Forward contract with 1 month, 2 months, 3 months, 6 months and 12 months rates appreciated by 0.15%, 0.22%, 0.32%, 0.58% and 0.99% respectively to close at ₦386.50/$, ₦387.36/$, ₦388.23/$, ₦391.00/$ and ₦402.55/$ respectively.
However, spot rate closed flat at ₦381.00/$.
“In the new week, we expect the widened disparity between different exchange rates to shrink, especially between I&E FXW or the autonomous window and Bureau De Change (BDC) segment, as CBN resumes the sale of FX to BDC operators in the near future”, analysts said.
More so, Cowry Asset said the renewed efforts by CBN to boost FX supply and plug leakages, it expects to see Naira appreciate against the greenback in most market segments.
Naira: Analysts Anticipate FX Convergence as CBN Boost Liquidity.