Without precedent for seven months, the dollar fell underneath the psychological N400 boundary, when the greenback exchanged at N399 to the dollar in Lagos and traded at N395 in Abuja, lower than N410 at which it exchanged on Tuesday.
With the increases made by the neighborhood cash over the most recent five weeks, the naira crept more like one of the Central Bank of Nigeria‘s (CBN) key remote trade approach targets of a conversion standard merging.
The naira exchanges for N375 to the greenback for invisible and at N307 to the dollar on the Forex interbank advertise, the official window for producers and shippers of crude materials qualified to purchase Forex from this section of the market.
The last time the naira exchanged at amongst N395 and N400 to the dollar on the parallel market was in August 2016.
The noteworthy additions made by the naira on the parallel market, as indicated by market experts, was an impression of the enhanced trust in the Forex advertise, taking after the managed dollar mediations by the CBN since a month ago.
One expert likewise ascribed the increases made by naira to the Bureau de Change (BDC) administrators that are flooded with dollars and with next to zero clients to disparage them.
“The BDCs are awash with cash. Remember that the central bank sold about $200,000 to each BDC at some point and they had also bought dollars at high rates which they hoarded, thinking that the naira would remain in a free fall.
“But with the CBN’s intervention, they are stuck with loads of dollars and little or no customers, so they have stopped buying dollars and are looking for avenues to offload what they bought at ridiculously high rates.
“Essentially, the speculative attacks on the naira has come back to haunt them and they’ve got their fingers burnt,” he said.
In all, the central bank has auctioned a total of $1.895 billion through forward sales, as well as targeted intervention for invisibles.
This amount does not include its daily intervention of $1.5 million on the interbank market.
The CBN Governor, Mr. Godwin Emefiele, on Tuesday expressed optimism about the convergence of the FX rates on the official and parallel markets, stating that the gains made by the naira against the greenback in the last five weeks was not a fluke.
Emefiele said he was happy that the central bank’s intervention was yielding positive results.
“I am happy, indeed very gratified, that the interventions have been positive, we have seen the rates now converging and we are strongly optimistic that the rates will converge further.
“In terms of sustainability, I think it’s important for us to say that the foreign reserves at this time are still trending upwards to almost $31 billion as I speak with you.
“And the fact that we have done this consistently for close to five weeks, should tell everybody or those who doubt the strength of the central bank to sustain this policy,” he had said after the meeting of the Monetary Policy Committee (MPC).
But an analyst at Ecobank Nigeria, Mr. Kunle Ezun, who welcomed the development in the Forex market, pointed out that achieving a convergence between the official (interbank rate) and parallel market rate would be a more onerous task.
“For us to have a convergence between the interbank and parallel market, it would require the CBN to devalue the official exchange rate to about N350 to the dollar.
“Without that, I don’t see how the official and parallel market rates can converge. Maybe what the CBN governor was talking about is achieving a convergence between the parallel market rate and the rate for invisibles, which is N375 to the dollar.
“But what the CBN has done in the last one month has really helped the parallel market rate. But we need to see improved liquidity on the interbank market,” Ezun said in a phone chat with THISDAY.