Analysts say new FX window mask pressures on Naira, eases by 18%

By Odunewu Segun

Financial analysts have said the new FX window introduced by the Central Bank of Nigeria would masked pressures on the naira as the apex bank tries to avoid devaluing its official rate for the currency.

According to them, the segmentation of forex demand through the adoption of multiple FX arrangements impedes the exchange rate from reaching true equilibrium.

Already the Naira was quoted 18.3 percent weaker for portfolio investors on Tuesday compared with the interbank rate, a day after the apex bank said it would allow investors to trade the currency at market determined rates.

The local currency was quoted at 374.25 to the dollar on the central bank’s new currency window, data on market regulator FMDQ OTC Securities Exchange, while it went at 305.95 on the interbank market and 385 on the black market.

Nigeria already had five rates: the official rate, the black market, a rate for Muslim pilgrims going to Saudi Arabia, a retail rate set by licensed exchange bureaus and a rate for foreign school fees.

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According to the Chief Economist at Standard Chartered Bank, Razia Khan, the move … is unlikely to … attract sizeable inflows until there is harmonization between the different markets.

Another analyst, Aly-Khan Satchu of the Nairobi-based Rich Management explained that Nigeria’s Central Bank is seeking to fine-tune its FX policy without a fully-fledged devaluation.

Recall that the apex last year removed a temporary peg to float the currency, but to protect its precariously low foreign reserves it introduced the convoluted exchange rate system that sees different buyers paying various rates for dollars.

The CBN has been using the forward market to meet demand for dollars, making only tiny volumes available on the spot market and using those sales to influence the naira’s official value.