In searching for ways forward in the foreign exchange market to arrest the volatility and fast dbwindling fortunes of the local currency, Naira, the Central Bank of (CBN) commenced introduction of several strategies to enhance liquidity and price discovery in the market.
These include unifying Forex market segments, clearing outstanding Forex obligations, introducing new BDC operational mechanisms, and enforcing banks’ Net Open Position (NOP) limit amongst others.
However, the impact of the CBN’s directive to banks to sell down part of their net long US dollar positions seemed to have been short-lived, even if turnover in the foreign exchange markets did improve significantly for a while.
Consequently, the naira depreciated to N1,534 per US dollar in the official foreign exchange market on Monday, February 12, 2024 from N1, 469.97/US$ on Friday and N1,479.47/US$ on Thursday last week.
Data from FMDQ showed that the indicative exchange rate for the Nigerian Foreign Exchange Market (NAFEM) fell below that of the unofficial market.
At the parallel market, the local currency also lost some grounds as it closed at N1, 495/US$ from N1, 490/US$ to the dollar on Friday, February 9, 2024, according to Bureau De Change sources.
The local currency closed against the British Pound Sterling (GBP) on Monday at N1,895/£ while the naira to Canadian dollar closed at N1,200/CAD.
Meanwhile, at the parallel market, the exchange rate at one point reached N1,505/$1 but eventually settled at N1,500/$1, losing 4.33 percent last week.
The larger decline in the parallel market created a 2.11 percent gap between the street and the official market.
The resultant effect is the gap between the parallel and the NAFEM market being reopened, reinforcing the need to improve the supply of US dollars into the market.
Local and international investors are waiting to see whether the reforms would bring the needed sanity for them to step into the market.
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Yemi Cardoso, CBN Governor had in an interview earlier in the previous week stated that out of the $7.0 billion Forex backlog inherited, the CBN had cleared $2.5 billion in verifiable claims, with $2.2 billion outstanding and $2.4 billion having irregularities.
The Governor noted that all these measures would stabilise the exchange rate, deepen the FX market into a more market-oriented mechanism, and restore investors’ confidence in the financial markets.
He assured Nigerians that foreign in estors, in particular are happy with the reforms so far and are monitoring development closely, insisting that better days are coming.