THERE were two consecutive days of convergence in the closing rate of the Naira on Tuesday and Wednesday, as the Naira converged at N1,603 and N1,615, respectively per dollar on both the parallel and official segments of the foreign exchange (FX) market.
However, by the close of the week, the local currency closed with a gap of N2.25 as it settled at N1,602.75/$ at the official window while it closed at N1,605 to the greenback at the parallel market segment of the foreign exchange market.
Specifically, forex recorded zero (N0.01) gap between the official and parallel market as the dollar was quoted at N1,615 across markets on Wednesday.
Data released by the FMDQ Securities Exchange showed that the dollar was quoted at N1,615.94 while it quoted at N1,615.93 at the parallel market, commonly referred to as black market.
At the Nigerian Autonomous Foreign Exchange Market (NAFEM) on Wednesday, the Naira lost 0.78 percent, as the dollar was quoted at N1,615.94, weaker than N1,603.38 quoted on Tuesday.
Dollar supply by FX market players including banks, exporters, investors and the Central Bank of Nigeria (CBN) increased significantly but could not shore up the value of the Naira.
Consequently, the daily FX market turnover rose by 103.59 percent to $248.75 million on Wednesday from $122.18 million recorded on Tuesday.
Similarly, the closing rate of the Naira on Tuesday converged at N1,603 per dollar at both the parallel and official segments of the FX market.
Some currency traders became jittery as many are concerned that the reduced margin between the official and parallel market exchange rates might linger, leading to reduced profit.
On the other hand, others were confident that the convergence will not be sustained due to extant high demand for dollars.
The local currency at the parallel market gained N12, as it closed at exactly N1, 603 compared to N1,615/$1 which it settled for at the close of business on Monday, according to Bureau De Change sources.
At the official section of the FX market, the local currency appreciated to N1,603.38 per dollar on Tuesday, from the closing rate of N1,617.96 per dollar on Monday.
This was after it had started the week appreciating by 0.58 percent to N1,617.96 on Monday, from N1,627.40 on March 8.
During trading, data from the FMDQ Exchange, a platform that oversees official FX trading in Nigeria, showed the FX rate dipped to as low as N1,650 and rose to N1,511.
Olayemi Cardoso, governor of the CBN said in February that the Nigerian foreign exchange market is currently facing increased demand pressures, causing a continuous decline in the value of the Naira.
Factors contributing to this situation include speculative forex demand, inadequate forex supply due to non-remittance of crude oil earnings to the CBN, increased capital outflows and excess liquidity from fiscal activities.
To address exchange rate volatility, Cardoso said a comprehensive strategy has been initiated to enhance liquidity in the FX markets. This includes unifying FX market segments, clearing outstanding FX obligations, introducing new operational mechanisms for BDCs, enforcing the Net Open Position limit and adjusting the remunerable Standing Deposit Facility cap.
According to analysts at Cordros Research, despite recent policy actions by the CBN, the currency remains under pressure due to a frail market supply. However, they are optimistic about the pace of market reforms and the CBN’s interventions.
The CBN has reduced the forex backlog by providing an additional $200 million, bringing the backlog to around $1.60 billion. Cordros Research commends the CBN’s initiatives aimed at making Naira assets attractive to both foreign and domestic participants, driving capital importation and investments over speculation.
They believe that these measures, along with clearing the forex backlog, could improve dynamics in the forex market and lead to enhanced liquidity in the medium term.
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