Again, ‘Naira Falls Massively Against Dollar
The Nigerian currency, naira, which Saturday weakened to N770/$ at the Investors’ and Exporters’ (I&E) window- the official market is marginally undervalued, analysts have said.
Managing Director Financial Derivatives Company Limited, Bismarck Rewane, said that in less than two weeks after the Central Bank of Nigeria (CBN) unified all exchange rates into the I&E window, the gap between the parallel and official exchange rates has narrowed sharply.
He said the naira has gone from an overvalued currency (N300) to temporary periods of undervaluation (-N45).
The depreciation of the local currency from N765/$ Thursday close to N770/$ on Friday happened despite increase in dollar injections at the I&E window.
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Data from FMDQ Exchange showed that $204 million transaction turnover was recorded at the window on Thursday, and similar volume of transactions have been recorded in the course of the week.
The I&E window was activated in June 2017, and represents the broader forex market, where dollars sourced from autonomous sources are traded between Authorised Dealers, Clients and the CBN.
This forex window is also the underlying market for the FMDQ Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) benchmark .
The unification of multiple exchange rates into the I&E window has been described by stakeholders as a game changer in the apex bank’s plan to achieve exchange rate stability.
The policy, which allowed forex dealers and investors to buy and sell dollars at exchange rate of their choice provided they can find buyers. This move aims to ensure that the naira is allowed to trade at the market-clearing rate in the forex market.
Fiscal Policy Partner and Africa Tax Leader at PwC, Taiwo Oyedele, said that with the I&E Window policy, government’s revenue would rise in naira terms resulting in a higher tax, revenue to Gross Domestic Product (GDP) ratio. It will also lead to possible reduction in budget deficit and some cost savings for government.
“With the Nigerian naira now exchanging in the official forex market at market determined rates, a significant market distortion has been removed. Expectedly, impact on diaspora remittances would be marginal, the capital market will benefit as it is likely to appreciate further as foreign investors take position, there should be negligible impact on the general prices of goods and services as products already factored in parallel market rates to a large extent. Overall, this is a positive move,” he said.
Continuing, he said the government needs to manage the dynamics to restore confidence, adding that the backlog of forex demands needs to be addressed and government should be ready to supply forex to stabilise the exchange rate in the short term.
Oyedele added: “Government also needs to relax capital control and administrative bottlenecks including unbanning the list of items prohibited for forex (and complement with higher import duties), remove the need for certificate of capital importation among others to prevent the parallel market rate from simply moving further away from the official market rate. Stop the demand for certain taxes and levies in foreign currency, it creates unnecessary forex demand without adding to supply”.
“The aggregate demand for forex across markets should reduce as round-tripping incentive is removed, for instance people who fake foreign travels just to get forex at discounted rates. Also, Nigeria’s sovereign credit rating should improve if this is complemented with the right fiscal and monetary policies thereby attracting more forex inflows and lowering the cost of borrowing,” he stated.
CEO of Moniepoint, Tosin Eniolorunda, said the CBN’s decision to float the naira is a clear step in the right direction for our economy, ensuring investor confidence continues to grow.
“The decision is good for business, jobs and growth. It will help Nigeria’s brilliant entrepreneurs to do business globally and attract foreign investment. It will also help reduce inflation, leaving more money in people’s pockets,” he said.
