Naira rebounds to N741/$

The naira made a massive comeback at the official market, closing at N741/$ at the Investors and Exporters (I&E) window yesterday.

The local currency recorded N28/$ appreciation at the official market, stronger than N769/$ it closed on Friday.

Market reports showed there was cumulative appreciation of the Naira by 12 basis points last week, bringing its value to N769.25 against the US Dollar at the I&E FX window.

Also parallel market operators said yesterday that demand had moderated as the rate at the official market almost converged with the parallel market.

They attributedthe naira rebound to increased dollar liquidity in the market, including continuous offload of the local currency by speculators and hoarders who stockpiled dollars for speculative reasons.

Data from the FMDQ Exchange showed that the market over $260 million turnover was recorded last Friday and expects more liquidity boost in the market within the week.

The I&E window was activated in June 2017, and represents the broader forex market, where dollars sourced from autonomous sources are traded between Authorised Dealers, Clients and the CBN.

This forex window is also the underlying market for the FMDQ Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) benchmark.

The rate at the I&E window has come to represent the official rate for the naira after the Central Bank of Nigeria (CBN) abolished multiple exchange rates in the economy.

The unification of multiple exchange rates into the I&E window has been described by stakeholders as a game changer in the apex bank’s plan to achieve exchange rate stability.

The policy, which allowed forex dealers and investors to buy and sell dollars at the exchange rate of their choice provided they can find buyers. This move aims to ensure that the naira is allowed to trade at the market-clearing rate in the forex market.

Fiscal Policy Partner and Africa Tax Leader at PwC, Taiwo Oyedele, said with the I&E Window policy, the government’s revenue would rise in naira terms resulting in a higher tax revenue to Gross Domestic Product (GDP) ratio. It will also lead to possible reduction in the budget deficit and some cost savings for the government.

“With the Nigerian naira now exchanging in the official forex market at market determined rates, a significant market distortion has been removed. Expectedly, impact on diaspora remittances would be marginal, the capital market will benefit as it is likely to appreciate further as foreign investors take position, there should be negligible impact on the general prices of goods and services as products already factored in parallel market rates to a large extent. Overall, this is a positive move,” he said.

Continuing, he said the government needs to manage the dynamics to restore confidence, adding that the backlog of forex demands needs to be addressed and the government should be ready to supply forex to stabilise the exchange rate in the short term.