The foreign exchange (FX) market opened on Wednesday with naira depreciating by 0.38 percent against the dollar at the parallel market.
The dollar was trading at N778 on Wednesday morning, the same rate it closed at the end of trading on Tuesday, which was lower than N775 traded during the intraday trading on the same day.
“This is the rate available in the market now but it can change later in the day depending on the demand pressure,” one trader told BusinessDay.
Dollar demand pressure was witnessed at the Investors and Exporters (I&E) forex window on Tuesday as willing buyers and willing sellers bid as high as N820/$ and at a low rate of N700/$.
The volume of dollars transacted in the market declined by 16.71 percent to $73.86 million on Tuesday from $88.68 million recorded on Monday.
Consequently, naira depreciated by 3.50 percent as the dollar was quoted at N768.44 on Tuesday as against N741.50 quoted on Monday at the official FX market, data from the FMDQ indicated.
The comprehensive reform initiated in mid-June addresses three critical distortions in the FX market, which include the absence of a price discovery mechanism; the existence of multiple FX windows; and institutional weaknesses, such as a lack of transparency and predictability, the World Bank said in a report.
Beginning on June 14, the Central Bank of Nigeria (CBN) made important reforms by abolishing the segmentation of the FX market across multiple FX windows and collapsing them into the Investors & Exporters window.
This has allowed the naira to trade freely by reintroducing the willing buyer, willing seller mechanism at the I&E window, bringing the exchange rate for government transactions closer to the NAFEX, enhancing transparency of orders, and removing ineffective schemes such as the RT-200 and Naira 4 Dollar Remittance programs.
This resulted in the largest single-day depreciation of the naira (27 percent), from N463 to N632/US$.
“To continue improving the efficiency of the FX market, remaining priorities are to remove FX restrictions, clearly communicate how the new FX regime will operate, and implement a supportive
monetary framework where the primacy of price stability guides monetary policy actions,” the report stated.