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Hope In Sight As Nigeria Signals Exchange Rate Float (See Details)
There are indications that Nigeria, through the Central Bank of Nigeria (CBN), is set to affect exchange rate convergence, a move that is already bringing the bank, Investors and Exporters (I&E) windows closer to the parallel market exchange rate
Forex market participants said that a market rate based on a willing buyer and a willing seller is currently being quoted by banks who sent out emails to some customers confirming the change Wednesday morning.
Though the CBN is still quoting N463/$ as the I&E rate on its website, traders say the naira exchanges, are between N760/$ and N763/$.
The latest development means people can get dollars at the bank for whatever rate the banks can afford to sell depending on demand and supply.
Some bankers predict that the exchange rate could go as high as between N800 and N1000 by the end of the week.
The CBN has been holding dollar to naira rate at N460/$ -N464/$ pegging.
The latest move by the CBN follows President Bola Tinubu’s suspension of CBN governor Godwin Emefiele whose unorthodox monetary policies had become a stumbling block to investors and the economy.
Another knowledgeable source is of the view that the willing buyer/willing seller arrangement that has now been adopted is only the first of six steps to fix Nigeria’s broken FX market.
The second step must be to provide a hedging mechanism that is priced in line with the market while the third step is to ensure market yields are attractive to Foreign Portfolio Investors (FPI).
The next steps are to ensure transparency and remove all controls around domiciliary accounts. Finally, there is also a need to clear the dollar backlog in the market in order to attract FPIs.
Banking sources said the CBN has told banks that the rate cap has been removed at I & E Window.
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Consequently, banks and customers are allowed to trade freely at any rate subject to N1 spread between buy and sell rate.
Analysts believe that the development will bring the needed transparency in the forex market and address the scarcity that has put pressure on the local currency over the years.
Analysts at Proshare, a financial information news medium, explain that the merging of the rates should lead to a depreciation of the local currency in the official market, but the parallel market should see an appreciation.
The official rate could fall between N600/$ and N650/$.
(Tribune)
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