A dollar sold for the same amount at the banks as on the streets in Nigeria on Wednesday, a rare convergence that analysts say if sustained will help boost liquidity in the official foreign exchange market.
Data released by the FMDQ Securities Exchange showed that the dollar was quoted at N1,615.94 in the official market while it sold for N1,615.93 at the parallel market, commonly referred to as black market.
The wide gap between the official and unofficial exchange rate had drained the official market of dollars with sellers of the greenback preferring to go to the black market to take advantage of the premium in that market.
It’s not the first time that the gap has narrowed since the CBN embarked on far-reaching reforms last June. But it was never sustained with the rates flying apart again as liquidity dried in the official market, forcing demand to the black market.
The daily FX market turnover on Wednesday rose by 103.59 percent to $248.75 million from $122.18 million recorded on Tuesday.
Olayemi Cardoso, governor of the CBN said in February 2024 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, he 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.
The Monetary Policy Committee (MPC) meeting, which held on February 26 and 27, 2024, raised the MPR by 400 basis points to 22.75 from 18.75 per cent, adjusted the asymmetric corridor around the MPR to +100/-700 from +100/-300 basis points, raised the Cash Reserve Ratio from 32.5 percent to 45.0 per cent, and retain the Liquidity Ratio at 30 per cent.
Analysts at Cordros Research said the currency remains under pressure due to 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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