Currency dealers, analysts and other stakeholders in the financial services sector expect more convergence of rates in the foreign exchange market for sustained naira gains and confidence in the economy.
Last week, the forex market witnessed the first convergence of exchange rates between the investors and exporters forex window and the black market where dollar was quoted at N367 at both markets.
“We expect further convergence in the foreign exchange market with possible appreciation against the USD subject to CBN’s level of intervention,” analysts at Cowry Asset Management said.
Within six weeks of creating the investors and exporters window, forex market has recorded excess of $2.2 billion in volume of transaction at the window, which Demola Sogunle, CEO of Stanbi IBTC Bank, described as quite impressive.
Aminu Gwadabe, president, Association of Bureau De Change Operators of Nigeria (ABCON), said the gradual convergence of the exchange rate on both black market and investor forex window was an opportunity for the central bank to unify rate in all segments of the forex market.
According to Gwadabe, a move to eliminate multiple rates will restore investors’ confidence in the economy and boost offshore dollar inflows, further strengthening the naira.
The central bank has been intervening on the official market in the last few weeks to try to narrow the spread between rates on the official market and black market. The apex bank has sold about $5 billion since February.
Isaac Okorafor, acting director, corporate communication, CBN, said the bank would sustain its current efforts to improve dollar liquidity in the market until it was able to achieve currency rate convergence.
On Monday last week, the apex bank intervened in the interbank foreign exchange market, selling $413.5 million in a bid to further guarantee liquidity in the market and support the naira. Another auction of $260.0 million was conducted on Tuesday, with the CBN offering $100 million to dealers in the wholesale window, while the Small and Medium Enterprises (SMEs) window was allotted $28.0 million.
Retail invisibles demand received the sum of $25.5 million for Business/Personal Travel Allowances, school tuition, and medicals, among others.
“We expect the stability in the FX market to be sustained in the short to medium term as the CBN continues its intervention in the spot and forward markets as well as the improvement in the Nigerian Autonomous Foreign Exchange (NAFEX) window,” analysts at Afrinvest Securities Limited said.
The naira exchange rate at the official market was flat at N305.7/$ from the previous week’s close of N305.6/$.
Meanwhile, at the FMDQ NAFEX segment, the currency appreciated 1 percent week-on-week to N371.25/$ from N375.08/$ published in the prior week. However, rate at the parallel market depreciated to N370.00/$ from the previous Friday’s close of N367/$.