The exchange rate gap between the official and parallel segments of the foreign exchange market has widened to N150 per dollar from N96/$1 after FX unification in June amid tight supply of the greenback.
The naira on Tuesday fell to N920- N925 per dollar at the parallel market, following strong demand for the greenback. Dealers were buying from willing sellers at N915/$ while selling at N920-N925/$ to willing buyers.
During the intraday trading on Tuesday, the dollar was quoted at N920-N925/$1, which represents 1.09 percent depreciation compared to N915 per dollar traded during the morning session.
Dollar was quoted at N775.34 on Tuesday at the Investors’ and Exporters’ (I&E) window, the country’s official FX market.
With the current exchange rates, the gap between the official and parallel markets has dropped to N150/$ from N301/$ in 2021.
The Central Bank of Nigeria (CBN) on June 14, 2023 collapsed all segments of FX markets into the I&E window.
Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said rate unification does not imply that rates will be exactly the same in all segments of the market.
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According to him, the objective is to ensure that the differentials are very minimal, possibly between 5-10 percent.
The CBN, on August 18, 2023, released a new operational guideline for the sale of FX by Bureau De Change (BDC) operators.
According to the new guideline, the spread on buying and selling by BDC operators shall be within an allowable limit of -2.5 percent to +2.5 percent of the Nigerian FX market window weighted average rate of the previous day.
“The -2.5 to +2.5 percent is the spread the BDCs are allowed to make in buying and selling on their rates. The anchor rate to be used to calculate the spread is the closing average weighted rates in the I&E window of the previous day on the following day,” said Aminu Gwadabe, national president of Association of Bureau De Change Operators of Nigeria.
Gwadabe said the new regulation is aimed at repositioning the BDCs for compliance with a view of integrating them in the harmonised I&E window.
“Events have indicated over the periods of BDCs effectiveness in engagements by the apex bank in achieving market convergence. The pass-through effect of any foreign exchange policies to achieve its objectives must consider the various stakeholders in the FX ecosystem,” he said.
The removal of the exchange rate peg in mid-June saw a convergence of official and parallel market rates. However, limited inflow has led to the depreciation of the naira in relation to major currencies, said Yemi Kale, partner and chief economist at KPMG Nigeria, in his presentation at BusinessDay’s CEO Forum in Lagos in July.
He said autonomous FX flows are the dominant sources of FX inflows in Nigeria, adding that empirically, a 1 percent increase in the exchange rate gap reduces autonomous flows by 0.4 percent.
Bismarck Rewane, managing director/chief executive officer of Financial Derivatives Company Limited, had said that naira was expected to cross the N900/$ threshold before recovering.
“Until there is enough supply to meet FX demand, the ability to stabilise the exchange rate will be difficult and might force the CBN to use its limited reserves to intervene to stabilise the rate,” Kale said.