The huge gap between the inter-bank and the Bureau De Change (BDC) segment of the foreign exchange market will further encourage unethical practices in the forex market, BusinessDay has learnt.
The premium between the BDC and the inter-bank foreign exchange market is about 21.72 percent, while the gap between the official rate and the BDC is about 23 percent.
This presents arbitrage opportunities for traders and the banks, despite the Central Bank of Nigeria (CBN) restrictions, says Ayodeji Ebo, head investment research, Afrinvest Securities Limited.
Analysts see the recent foreign exchange policies of the CBN as becoming less effective. The exclusion of certain items from participation in the official window will continue to spur demand at the parallel market.
Adelabu Adebayo, deputy governor, corporate services, CBN, noted in his personal statement at the last Monetary Policy Committee (MPC) that the most important concern is the lingering pressure in the foreign exchange market, despite the series of recent administrative measures, including the exclusion of a number of goods from the interbank markets.
This has invariably widened the premium between the interbank and the BDCs’ market to a phenomenal height of about 24 per cent.
Sarah Alade , deputy governor, Economic Policy Directorate of the CBN, also observed that the foreign exchange market is experiencing intense pressure, as the gap between interbank and bureau de change rates continues to widen, and the external sector shows deterioration in all vulnerability indicators.
Months of import cover of reserves which stood at 8.33 percent a year earlier, and declined to 7.10 at March end. Current account balance/GDP went from a surplus of 1.93 percent in Q3 2014 to a deficit of -3.39 percent at the end of first quarter in 2015.
The sustained pressure further buttressed the resonating clamour for an official devaluation of the naira, which will reduce pressure on the local currency, as well as boost Forign Portfolio Investment (FPIs) confidence, Ebo said in an emailed response to BusinessDay.
The nation’s currency on Friday depreciated in value across all markets segment, as a result of strong dollar demand. After trading on Friday, the naira weakened by N0.84k or 0.43 percent against the US dollar at the inter-bank market. It closed at N198.28k/$ compared to N197.44k/$ the previous day.
At the BDC segment of the foreign exchange market and parallel market, the local currency gained N2.00k/$ or 0.92 percent each as it closed at N220/$ as against N218/$ previously at the BDC segment. It closed at N222/$ on Friday from N220/$ the previous day at the parallel market.
Against other currencies, the naira closed at N245 against the Euro on Friday, as against N243 at the BDC segment and N247/Euro, compared to N245/Euro at the parallel market.
The naira traded the same against the British Pound Sterling, closing at N340 at the BDC segment while gaining N2 to close at N343 from N245 at the parallel market.
Bismarck Rewane, Managing Director/CEO, Financial Derivatives Company Limited, had said the spread between the inter-bank and parallel market will increase. “Administrative management of the currency is not efficient. They should allow foreign exchange to find its true value”, he said.
HOPE MOSES-ASHIKE
