As the planned unification of Nigeria’s multiple foreign exchange windows by the Central Bank of Nigeria gain momentum, financial experts have predicted positive outlook for the Naira against international currencies, especially the US Dollar.
The CBN Governor, Godwin Emefiele, had alluded to the fact that the lull in business activities suggested that forex demand should be low, thus calling into question the pent-up demand being highlighted by several market analysts.
He suggested that the black-market rates being reported were likely not representative of what the real demand was, but rather driven by speculative forces.
Speaking on the unification, Macroeconomist at CardinalStone Research, Michael Nwakalor, amid purported pressure from multilateral organizations for a unified exchange rate, the naira has noticeably weakened at both the NAFEX and parallel markets in recent weeks, with reports of a devaluation at the SMIS window from N360/$ to N380/$.
“We expect a possible unification to converge towards the NAFEX rate of N385/$ and if supported by increased FX supply and clear body language by the CBN, we may also see a steep recovery in the parallel market towards that rate. In the absence of this, we expect a characteristically quiet week in the FX market.”
Thelma Ugonna Ohiri-Anyanwu, CFA, a leading financial expert in a Nigerian tier-1 bank, was also optimistic about the naira stabilizing this week, saying with little or no significant activities to stimulate the market and no fundamental change, the naira will be relatively stable in the coming weeks.
“With the CBN devaluing the currency by 5.3 per cent from N360 to N380 at its latest currency auction, this saw the market close at about N389 to a dollar. This I believe is in a bid at unifying the rate at the various windows.
“The I&E window will likely trade around N388-389/$ levels. While the parallel market at N460 to 461/$ levels.”
Similarly, a treasury dealer, Mike Akogun, argued that with the move in unifying the exchange rate system, it is also expected that the present converging of the rates estimated at N387 to $1 (I &E Window) would boost revenues for the federal government which could see a gain of N20 on every US dollar earning in oil.
“With the increase in base rate at last week’s Retail Auction to $/N380 from the $/N365, I expect similar revision of the official rate from $/N361 to IEFX level in line with rate unification exercise which would boost Naira revenue from crude oil sale and qualify the CBN to draw-down from the IMF/World bank loan.
Conversely, market analysts believe that the reluctance of the CBN to fund liquidity shortages at the I&E window is the reason why the black market has depreciated to about N461/$1.
They claim legitimate transactions have already taken place in the parallel market, especially for businesses that have obligations to meet but cannot access forex from official windows.