The Nigerian naira declined yet again on Tuesday at the official market bringing the gap between the bank rate and street rate to less than 1 percent.
That’s the closest both rates have been since mid-June when the Central bank allowed the naira to trade more freely against the US currency.
The exchange rate at the official market even briefly overtook the rate on the streets on the day after the naira was quoted at N1,531 per US dollar in intra-day trading.
The naira however ended the day weaker than the previous day at N1,482 per dollar in the official market while also closing weaker at N1,490 per dollar in street trading, according to data collated from multiple traders, as strong demand intensified amid shortage.
Analysts and investors are watching closely to see if the gap will stay this way or start to widen again.
“How the gap evolves from here depends on if the CBN does the right thing or not,” a business leader told BusinessDay.
“We will perhaps have a true value determination and as bad as the fall is we should now be able to attract cash into the market. This is the test for the CBN. Will they get it right?,” the business leader said.
Investors had faulted the CBN’s lack of transparency with the rates at the official market. The rate had been fairly stable despite acute dollar shortages in the market until this week after the CBN made changes. The intra-day rates painted a more realistic picture of the naira’s level than the closing rate.
That however changed on Monday after a reassessment by the CBN of the methodology employed to determine the exchange rate.
The primary goal of the change according to CBN sources is to mitigate fluctuations in the foreign exchange market and ensure that rates align more accurately with prevailing market conditions.
“We believe the naira will continue the slippery slope given the lingering huge oil theft that has reduced FX supply to the CBN,” Ayodeji Ebo, managing director/CBO, Optimus by Afrinvest, said.
He said increasing crude oil production from the current 1.35mbpd to over 1.65mbpd is the short-term fix to create a steady FX supply to the CBN as well as provide support for any FX raised through Eurobonds, multilateral arrangements, and FX structures, adding that the medium to long-term fix is to increase non-oil exports.
