The exchange rate gap/spread between the official and the parallel market on Wednesday closed by 99.33 percent to N1.83 per dollar from N275 in April this year.
Dollar on Wednesday quoted at N763.17 at the Investors and Exporters (I&E) forex window and at N765 at the parallel market. The naira/dollar exchange rate on Tuesday converged, closing at the rate of N756 at both markets.
The closing of the exchange rate gap and the convergence followed the recent foreign exchange (FX) policy reforms carried out by the Central Bank of Nigeria (CBN).
Naira on Wednesday lost 0.87 percent against the dollar at the I&E forex window, Nigeria’s official market.
After trading on Wednesday, the dollar was quoted at N763.17 as against N756.61 quoted on Tuesday at the I&E window.
The naira depreciation was attributed to the activities of the willing buyers and willing sellers in the market as the market recorded high bids at the rate of N815 per dollar.
At the parallel market, naira also depreciated by 1.17 percent as the dollar traded at N765 on Wednesday compared to N756 on the previous day.
Traders attributed the naira depreciation at the black market to increased demand for dollars from individuals for school fees and travel allowances.
Taiwo Oyedele, head of tax and corporate advisory services at PwC Nigeria, said the forex market is still volatile as it continues its journey of price discovery. “I think it is too early to conclude if the rates convergence will be sustained although that is the long term objective,” he said.
“A situation where the spread between the official rates and unofficial rates is over 50 percent it will be very difficult to achieve stability but spikes and volatility,” said Aminu Gwadabe, national president, Association of Bureau De Change Operators of Nigeria (ABCON).
Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited, said “If the official market is well supplied to meet the genuine foreign exchange needs of businesses and individuals the rate at the parallel market will crash as fewer people will patronise that market.”
The CBN on June 14, 2023 collapsed all segments of foreign exchange markets into the I&E forex window.
This means that all eligible FX transactions in the market shall only be done via the I&E window, all other windows cease to exist.
The I&E market functions by a willing buyer, willing seller system, where an entity with demand for FX seeks out another entity with FX to sell at an agreed price through an authorised dealer.
“Following the decision of the monetary authority to impose a less restrictive foreign exchange policy to bring convergence in rates across the market, we opine that the foreign exchange market remain volatile in the near term as we begin to see market participants position themselves to determine the fair exchange price levels within the N600 band, and, in the medium to long term, ascertain the true value of the naira against the dollar in the market,” analysts at Cowry Assets Management Limited said.
In compliance with the CBN’s FX policy changes, Nigerian deposit money banks have asked their customers to fund their accounts adequately for new and pending requests to access foreign exchange for legitimate needs, and that all eligible request dollars will be treated subject to FX availability.
Such legitimate needs include Form A applications for business Travel Allowance (BTA), Personal Travel Allowance (PTA), school fees, and medical fees, and Form Q for Small and Medium Enterprises (SMEs).