BusinessDay

Naira closes at 271.96 premium between official, black market

The difference between the official and black market exchange rate known as the premium, stood at N271.96/$ on Tuesday as the naira strengthened by 0.11 percent at the Investors and Exporters (I&E) forex window, Nigeria’s official market.

After trading on Tuesday, naira closed at N436.04 per dollar as against N436.50 closed on Monday at the I&E forex window or the Nigerian Autonomous Foreign Exchange Fixing (NAFEX), data from the FMDQ indicated.

The slight appreciation followed a moderate demand amid low dollar supply. The daily foreign exchange market turnover declined by 0.16 percent to $83.71 million on Tuesday from $99.78 million recorded on Monday.

Most foreign exchange dealers who participated at the FX auction on Wednesday maintained bids between N435.00 (low) and N437.00 (high) per dollar.

At the parallel market, popularly called black market, the local currency closed at N708 per dollar on Tuesday, which represents a N1 loss compared to N707 traded on Monday.

The naira is likely to appreciate at the parallel market towards N670/$ -N680/$ in October 2022, according to Bismarck Rewane, managing director/chief executive officer of Financial Derivatives Company Limited.

“The exchange rate effect is already softening since the naira has been steady at the parallel market,” he said.

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Nigeria has a multiple exchange rate system, resulting in persistent currency pressures due to a distorted market structure, he said.

He noted that dollar shortages remain the principal challenge, undermining the performance of the non-oil sector, Nigeria’s exports still largely dominated by oil and oil-related products.

Rewane said the CBN is likely to allow an adjustment at the I&E window towards N440/$ and that the CBN will increase forex supply at the window.

He noted in his presentation at the Lagos Business School that consecutive interest rate hikes drive investors towards the fixed income space.

Nigeria’s Central Bank of Nigeria (CBN) on July 19, 2022 tightened its Monetary Policy Rate (MPR) by 100 basis points to 14 percent, the second straight raise this year to curtail rising inflation.

“Expect an increase of at least 200 basis points in the general level of interest rates,” Rewane said. “Fixed income investors earn approx.0.7 percent in a month. Smart investors will take advantage of the equities market dip now,” he said.

At the money market on Tuesday, the Nigerian treasury bills secondary market closed on a flat note with the average yield across the curve closing flat at 7.80 percent, according to a report by the FSDH Research. Average yields across short-term and medium-term maturities remained unchanged at 6.50 percent and 10.30 percent, respectively. However, the average yields across long-term maturities declined by 1 basis point. NTB 9-Mar-23 (-1 basis point) maturity bill witnessed mild buying interest.

The Overnight (O/N) rate decreased by 4.00 percent to close at 8.00 percent on Tuesday as against the last close of 12.00 percent on Monday, and the Open Repo (OPR) rate also decreased by 4.00 percent to close at 7.50 percent compared to 11.50 percent on the previous day.

With Open Market Operation (OMO) repayment of N35.00 billion, the money market rates are likely to remain at current levels in the near term, barring any mop-up activity by the CBN, analysts at FSDH said.