By Jeph Ajobaju, Chief Copy Editor
Naira exchanged at N385.99 to the dollar at the NAFEX intraday trading on Tuesday and sold at N477 at the parallel market, but Goldman Sachs has predicted further devaluation of the Nigerian currency in the next 12 to 18 months.
On August 6, the Central Bank of Nigeria (CBN) devalued the official exchange rate to N380/$1 from N360.1/$1, an adjustment suspected to be a prelude to unification of multiple exchange rates canvassed by the World Bank.
However, Bloomberg reports Goldman Sachs, a leading global investment banking firm, as saying that “a significant devaluation of the naira is likely in 12 to 18 months to stabilise Nigeria’s external accounts.
“An exchange rate of 500-550 per dollar should bring about the desired balance . compared with a current rate of about N407.”
In the meantime, the naira stabilised a day after the CBN issued a circular removing buying agents/companies or any third parties from accessing its SMIS foreign exchange (forex) window through FORM M forex purchases.
Dated August 24, 2020, the circular instructed authorised dealers “to desist from opening of Form M whose payment are routed through a buying company/agent or any other third parties.”
That effectively eliminated third parties or middlemen from forex deals in CBN official SMIS window.
The decision is meant to “ensure prudent use of our foreign exchange resources and eliminate incidences of over invoicing, transfer pricing, double handling charges, and avoidable costs that are ultimately passed to the average Nigerian consumers,” the CBN said.
It also instructed authorised dealers to only open FORM M for Letters of Credit, Bills for Collection, and other forms of payments in favour of the ultimate supplier of product or service.
Forex turnover
Nairametrics.com reports that on Tuesday, Forex turnover at the Investor and Exporters (I&E) window increased 442 per cent after a huge drop the previous day.
Nairametrics adds that
- Forex turnover rose from $7.20 million on Monday to $39.03 million on Tuesday.
- The increase came a day after the huge drop in forex turnover following scarcity of dollars.
- This reinforces the continued volatility of the forex market and the scarcity of the dollar, which supply has been on a decline for months due to low oil prices and the absence of foreign capital inflow.
- Average daily forex sale last week was about $71.13 million, a significant increase from $24 million recorded the previous week. But the day’s FX turnover is far short of the $200 million recorded sometime last week.
- Total forex trading at the NAFEX window in July was $937 million compared with $875 million in June.
- Exchange rate disparity between the official NAFEX rate and the black market rate remains as wide as N91.
Nigeria has multiple exchange rates comprising the CBN official rate, the BDC rates, SMIS, and the NAFEX (I&E window).
The wide disparity between official and unofficial rates creates huge arbitrage opportunities for highly connected individuals.
Parallel market
At the black market, where forex is traded unofficially, the naira remained stable against the dollar to close at N477/$1 on Tuesday, according to Abokifx, a prominent FX tracking website.
This was the same rate on Monday.
NAFEX
The naira also remained stable against the dollar at the Investors and Exporters (I&E) window on Tuesday, closing at N385.99/$1.
This was about the same rate on Monday.
The opening indicative rate was N385.64 to the dollar on Tuesday, a gain of 74 kobo compared with N386.38 to the dollar recorded on Monday.
The N386/$1 was the highest rate during intraday trading. It also sold for as low as N380/$1 during intraday trading.
Forex is sold at several prices and at different times during the day.
