Naira: Nigeria’s Foreign Exchange Rates Gap Collapses



Naira: Nigeria’s Foreign Exchange Rates Gap Collapses

Naira: Nigeria’s Foreign Exchange Rates Gap Collapses

The gap between the Nigerian naira exchange rates at the investors, exporters’ window and parallel market printed lower at N278 per United States (US) dollar. Creating speculative opportunity, the FX spread had printed above N300 on each US dollar earlier in the year when the parallel market rate skyrocketed near N790.

At the investors’ window on Monday, the naira appreciated by $1.75 to close at N462.25 as inflows from the Central Bank of Nigeria’s FX auction supported the supply side.

Last week, the apex bank sold dollars to market participants via its secondary market intervention sales. This reduced demand pressures in the parallel market where the naira trades freely for invisible forex demands.

Yesterday, Bureau de Change (BDCs) operators sold US dollars at N740 in the open market, according to MarketForces Africa channel check. Analysts said the exchange rate has been on a positive trend ahead of an expected increase in demand for forex in the parallel market.

Recall that local banks announced a 50% reduction in business/personal travelling allowance to their customers as apex bank ration FX for eligible demand.  Comparing the two market exchange rates. FX gap printed at N277.75, achieving a more than 7% convergence. 

At the current level, analysts still see an opportunity for speculation in the economy. In 2023, Naira is more likely to decline in value without holistic exchange rate management reforms, and healthy US dollar inflows into the local economy, according to analysts’ consensus.

Last week, the Nigerian autonomous exchange rate (NAFEX) traded within the range of N460.0-466.0 per US dollar but closed at N464.

In the forwards market, FX traded within the range of N462.0-507.1.  In the 1-month contract, the naira depreciated by -0.5% to close at N469.2 on weekly comparison. Naira Lost 11% as Banks Issue New Update on FX Spending

On a longer contract, a similar pattern was witnessed as the FX rate for 3- month contract depreciated by 0.5% to close at N485.9 on Friday. In the retail secondary market intervention sales (SMIS) market, the FX spot rate remained unchanged to close at N462 – the same day when the naira worsened to N464. 

In a market brief, Coronation Research estimated the gap between the NAFEX and parallel market rate at 59.9%. According to data from FMDQ, NAFEX turnover declined by -12.2% week on week to $359.6 million.

Analysts said the NAFEX window recorded an inflow of US$210.5 million. Of the sum. CBN accounted for 2.8%, foreign portfolios investors 9.9%, non-bank corporates 52.8%, exporters 27.7%, and others accounting for 6.8%. #Naira: Nigeria’s Foreign Exchange Rates Gap Collapses

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