CEM REPORT, MARKET | The Naira has been rallying at a steady pace against the Dollar ever since the Central Bank of Nigeria (CBN), started clearing the FX backlog the country owed. Nigeria might just be on the verge of an actual currency unification.
According to CEM sources, the Naira is selling at an average of ₦1,000/$1 as against a record low of ₦1,300/$1 it sold last week. Further, checks reveal that some vendors sell at ₦980 and as much as ₦1,050. The rate varies by location.
At the CBN window, the naira is trading at ₦884.53/$1. The gap between the black market rate and the official market rate is gradually closing up.
The gap is expected to close further with the expectant $10 billion in the coming weeks which the Finance Minister and Coordinating Minister of the Economy, Wale Edun has said would be used to improve foreign exchange (FX) market liquidity.
He noted that the $6.8 billion overdue forward payments in FX needed to be addressed before the naira could stabilise. Stressing that resolving the overdue contracts would allow the naira to strengthen and “pave the way for additional foreign exchange flows. “The issue we have now is that the market is not liquid enough,” Edun had said.
He added: “We are committed to encouraging liquidity based on reforms that have been made at the moment, on the fiscal side and the monetary side. And together with the restoration of trust and confidence, we think the FX flows will return.”
Recall that the CBN lady week started clearing FX obligation with an initial payment of $1 billion. While this is expected to ease the pressure on the naira and the economy at large.
According to BusinessDay the CBN started clearing the backlog and delivered over 75 percent to 80 percent of outstanding matured FX forwards in some specific banks. Banks settled include Citigroup ($72 million); Stanbic ($125 million) and Standard Chartered ($63 million).
Central Bank Governor Olayemi Cardoso upon his appointment and confirmation, said that the apex bank would not intervene in the FX market as it has done before but will restrict to advisory functions. Since the announcement, the dollar rose over ₦1,000/$1 in the parallel market. He said however market factors would drive the rate noted upon clearing of the FX backlog.
Although restrictions on FX trading have been lifted liquidity is still low hence the rate keeps plummeting.