Naira depreciated by N107, now N770/$1 at I&E window

For the first time in decades, the naira exchange rate at the Investors and Exporters (I&E) window – the official market rate – weakened below the parallel market rate.

The naira depreciated by N107 to close at N770/$1 at the I&E window yesterday, weaker than the N757/$ it exchanged at the parallel market rate.

The local currency, which closed on Friday at N663/$1 at the I&E window, struggled to sustain the appreciation tempo after dollar supply to the market shrank and manufacturers struggled to source it for items not valid for forex access.

Analysts also said Friday’s low closing rate at the I&E window attracted forex buyers interested in getting the greenback at cheaper rates to that segment.

The Central Bank of Nigeria (CBN) unified exchange rates into the I&E window last Wednesday, allowing market forces to determine the exchange rate.

Managing Director of Economic Associates, Dr. Ayo Teribe, said the Bureau De Change (BDC)/ parallel market rate is a reliable indicator of market realities and is stable.

“The volatile price correction in the I&E rate should trigger an equally strong reduction in demand plus an increase in supply in that window.

“That would make the market settle back towards equilibrium in the next few days. I expect the rates to strengthen across all windows before the end of this week.

“I expect the unified rate to move towards N600/$ or stronger in the next week or so,” Teriba said.

Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, noted that in continuation of the fundamental reforms in the forex market, the CBN announced the relaxation of the domiciliary account restrictions, easing limits on cash deposits and withdrawals.

He said the market’s reaction to this was the instant appreciation of the naira at the parallel market by 0.53 per cent to N757/$.

“This is good news for traders who source dollars mainly at the parallel market. With this development, it is likely that imported inflation, which is a function of the exchange rate, begins to taper,” he said.

Rewane said the adoption of a single exchange rate and the “willing buyer-willing seller model” by the CBN is, no doubt, cheery news.

He said the new exchange rate framework is expected to increase transparency in the forex market, reduce exchange rate misalignment and transaction costs, and buoy investor confidence.

“However, exchange rate management goes beyond exchange rate unification. It must address issues surrounding market structure, easy access and adequate supply.

“This means effectively dismantling forex rationing, administrative controls, and reviewing import restrictions. As Barack Obama declared, ‘Africa doesn’t need strongmen, it needs strong institutions’,” Rewane said.

Former Executive Director at Keystone Bank Limited, Richard Obire, said Friday’s rate closing at the I&E window may have gingered more buyers seeking cheaper rates to that segment of the market.

“I suspect the average price on Friday has encouraged more buyers to come into the market. This may not have been matched by increased supply so the price will respond accordingly.

“This confirms the point that we need to see a reasonable period of trading to see where the market will settle,” he said.