Time for Nigeria to converge its FX windows

With data from Stanbic Stockbrokers indicating that Nigeria’s IEFX window exchanged a whopping $5bn dollars in March 2018, second highest levels since the launch of the window in April 2017, experts at Nairametrics are ofthe opinion that it’s time for Nigeria to converge its FX window.
According to the data, Nigeria’s IEFX window has traded about $38.9 billion since April 2017, when the market was launched. This compares to about $15 billion in the CBN SMIS window confirming the IEFX window as the dominant window for FX transactions in Nigeria.
The report also suggests that the CBN is selling $1bn dollars monthly at the CBN SMIS window and believes it is time that the CBN converges both markets (CBN SMIS and the IEFX Window).
“We have seen dollars in the CBN SMIS window get transacted between NGN328 – NGN340. If the CBN sells you a 75day forward at the NGN340, the time value of money and implied exchange rate is closer to NGN360 – which looks almost like a convergence.”
Data from the Central Bank of Nigeria also indicates that Nigeria’s external reserve has risen to $46 billion, the highest in over 5 years. Since April 2017, when the I/E window was introduced, Nigeria has added a net $16 billion to external reserve. However, between December 2017 and March 29, 2018, Nigeria’s FX reserve has increased by about $11 billion.
Starting from the downside, the economy is relying on FX inflows from Foreign Portfolio Investments and Debt to shore up its reserves. These sources have significant costs attached to them and are susceptible to capital flights.
However, the fact that Nigeria is yet to benefit from the hike in oil prices suggest the economy is less reliant on oil to boost stabilize its exchange rate. If the government thus decides to take a decision on fuel subsidy, Nigeria could benefit immensely from dollar savings.