The Central Bank of Nigeria (CBN) may have succeeded in checking speculators at the Foreign Exchange (FX) market who hitherto bet on naira devaluation as naira shortage at the parallel market is squeezing dollar demand.
Africa’s biggest economy today launched its FX interbank trading window in line with the apex bank’s decision for a free-floating FX market structure which will also boost the supply side of the green back.
Ahead of the move, the CBN sold N205.9 billion worth of one-year bills on Friday at 13.5 percent, compared with the secondary market which traded at 10.81 percent.
“We don’t have naira! Dollar is falling and…will continue to fall. You know from next week (this week) banks will start giving dollars to most of our customers we have been buying for. We are careful not to buy dollar and get stuck with losing money,” a parallel market dealer told BusinessDay on phone.
BusinessDay investigations across various parallel markets within Lagos show that the naira strengthened against the dollar in excess of 10 percent to N335, from a high of N370 before the new FX policy announcement.
The apex bank governor Godwin Emefiele expects the naira to settle at around 250 to the dollar after it abandons the peg of 197 to the dollar it has supported for 16 months.
The CBN will be introducing registered Authorised Dealers (FX Primary Dealers) designated to deal on large trade sizes (minimum $10 million) on a two-way quote basis.
“We expect an initial volatility when the interbank/autonomous market opens on Monday 20th June. However, the gap between the interbank and the parallel market is likely to narrow. In the medium term, the sources of FX supply for BDCs are expected to widen, suggesting a possible strengthening of the naira in that segment,” said research analysts at United Capital plc.
Nigeria stocks hit a three-week high in early session on Friday as domestic investors took positions before this week’s start of interbank currency trading under new rules introduced by the Central Bank to attract foreign investors.
The International Monetary Fund (IMF) said it welcomed the decision by Nigeria’s Central Bank to abandon its currency peg and adopt a flexible exchange rate policy, saying it was important to reduce fiscal and external imbalances.
IMF spokesman Gerry Rice told a weekly news briefing the Fund wanted to see how effectively the naira exchange market functions once the new float system is put into effect from today.
The CBN is selling long-dated treasury bills at higher yields than in the secondary market. There was cash of N1.06 trillion ($5.3 billion) on offer in the market on Friday before the bank auctioned the bills, traders said.
The naira was pegged at 197 to the U.S. dollar in February 2015 but trades about 50 percent lower than that on the black market.
IHEANYI NWACHUKWU
