The Naira yesterday lost almost half of its value in the official market as the exchange rate in the Investors and Exporters, I&E window rose to N664.04 per dollar from N471.67 per dollar on Tuesday.

This is coming after the Central Bank of Nigeria, CBN announced measures to liberalise the market including the elimination of multiple exchange rates, and freedom for banks to buy and sell foreign exchange at any rate based on a willing buyer and willing seller arrangement.

Announcing the new measures in a statement titled, “Operational Changes to the Foreign Exchange Market”, Director, Financial Markets, Dr. Angela Sere-Ejembi, said: “The Central Bank of Nigeria (CBN) wishes to inform all authorized dealers and the general public of the following immediate changes to operations in the Nigerian Foreign Exchange (FX) Market:

“Abolishment of segmentation. All segments are now collapsed into the Investors and Exporters (I&E) window. Applications for medicals, school fees, BTA/PTA, and SMEs would continue to be processed through deposit money banks.

“Re-introduction of the “Willing Buyer, Willing Seller” model at the I&E Window. Operations in this window shall be guided by the extant circular on the establishment of the window, dated 21 April 2017 and referenced FMD/DIR/CIR/GEN/08/007. All eligible transactions are permitted to access foreign exchange at this window.

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“The operational rate for all government-related transactions shall be the weighted average rate of the preceding day’s executed transactions at the I&E window, calculated to two (2) decimal places.

“Proscription of trading limits on oversold FX positions with permission to hedge short positions with Over-The Counter-futures. Limits on overbought positions shall be zero.

“Re-introduction of order-based two-way quotes, with bid-ask spread of N1. All transactions shall be cleared by a Central Counter Party (CCP).

“Reintroduction of Order Book to ensure transparency of orders and seamless execution of trades. The operational hours of trades shall be from 9am to 4pm, Nigeria time. Cessation of RT200 Rebate Scheme and the Naira4Dollar Remittance Scheme, with effect from 30 June 2023.

“Further guidance on these matters shall be communicated in due course. All market participants and the general public are kindly enjoined to abide by these rules.”

Data from the FMDQ showed that the I&E window exchange rate closed yesterday at N664.04 per dollar, up from N471.67 per dollar on Tuesday.

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On the contrary, the naira appreciated by N13 in the parallel market as the exchange rate in the market dropped to N755 per dollar, from N768 per dollar on Tuesday.

It’ll eliminate multiple exchange rates —Analysts

Analysts, who spoke to Vanguard, said that means that the CBN has floated the naira, and the exchange rate will now be market determined based on the demand and supply situation.

This development, analysts added, will lead to the elimination of multiple exchange rates, arbitrage, round tripping and other malpractice as well as enhance foreign exchange inflow into the country, and improve government revenue by about N4 trillion.

They, however, pointed out that the development will lead to a further rise in the prices of goods and services, increase government debt by about N12 trillion to N90 trillion, while increasing the cost of servicing the nation’s debt, and also elevate the debt to GDP ratio.

Enhanced forex inflow

Commenting, investment banker and the Co-founder, of Comercio Partners, Nnamdi Nwizu, said the immediate impact of the directive is enhanced foreign exchange inflow into the economy and further rise in the inflation rate, as the I&E window exchange rate rises aggressively as already seen yesterday.

He said: “First, we are going to see the I&E rate go up aggressively from N475. I expect over the next few days, it should settle maybe at around N730/$. Above N700 anyway.

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“With that, what they have tried to do is to create liquidity in the FX market because when the I & E exchange rate goes up, you will start to see foreign investors who are more comfortable coming into the country, because a lot of them have said the naira is overpriced. If that starts to happen you will start to see inflows coming back in, you will start to see the naira eventually start to appreciate.

“It depends on where we settle, we may settle at N600/$ levels. And if that liquidity flows, that will also help the parallel market exchange rate come down.

“But that might also lead to a bit of inflation because there are two things. One, we need to find out what price was used for petrol. So we might see an increase in petrol prices, because if they used, let’s say, N475/$ or N500/$, and it goes to N700/$, you will have higher petrol prices if they used N700/$ and it goes to N730/$ or N740/$ you will have higher petrol prices but eventually, like I said, depending on the rate they used, if the inflow start coming, you will start to have more liquidity, you will see Naira appreciate back down, it may settle around N600/$.

“But at the same time all those who used to buy a mix of parallel market and official rate to get a blend, now that means there is no official rate at around N470/$, everybody will now have to buy at a higher rate, which might lead to higher prices of goods.”
VANGUARD