Uncertainty has continued to trail the Central Bank of Nigeria [CBN] policy which aims to converge exchange rate towards the Investors’ and Exporters’ FX Window’s rate of N386, and the subsequent devaluation of the Naira from its official N360/$ to N380/$
With the policy, only bids above N380/$ will be considered for forex allocation, a situation that has contributed to the sharp practices in the forex market, typified by round-tripping now rampant among traders.
It would be recalled that the recent devaluation amidst lower prices, first from N306 to N360/$ and later by another adjustment of July 7, 2020, which moved the rate at the Special Secondary Market Intervention Sales (SMIS) to N381/$.
According to the CBN, the convergence of all forex rates towards the I & E rate is aimed at stopping multiple exchange rate practices and endearing Nigeria towards international investors and multilateral agencies.
However, this has not been the case as the Naira fell to another 3-year low, closing at N472/$1 on Monday at the black market where forex is traded unofficially. This is against the N470 to a dollar that it exchanged on Friday last week.
At the Investors and Exporters (I&E) window, it closed at N388.50/$1, N8 above the official rate, this was the same rate that was reported on Friday, July 17. The opening indicative rate was N388.40 to a dollar on Monday. This represents a 33 kobo drop when compared to the N388.07 to a dollar that was recorded on Friday. The exchange rate disparity between the official NAFEX rate and back market rate widened on Monday and is now a whopping N84.
According to financial experts the current attempts to unify exchange rate at this auspicious time without first sanitizing the Bureau De Change (BDC) segment of the market, is seen as a misplaced priority by CBN.
In fact, the alleged unwholesome measure of clamping down on the operators by CBN and currently tying their return to the market to resumption of flights by airlines, again, is considered as an ‘unwise’ decision.
In what some analysts see as another obnoxious policy was the recent directive by CBN to the effect that all banks with regional licences should expand their operations to an additional adjoining geo-political zone, a development that is considered as antithetical to the protocols of the Centre for Disease Control, (CDC).
Reacting to the development, the Chief Executive of Financial Derivatives, Bismarck Rewane, said, “Ironically, it is coming at a time of increased virtual banking and e-commerce. The value of e-payment transactions system-wide has increased by 47% from N8.1trn in April to N11.9trn in May, compared to a mere 9% increase during the corresponding period of 2019,“
But, some of the analysts say that the black market exchange rate currently at over N472/$ will not improve with the lifting of ban on BDC without sanitizing the market
“Let me tell you… the current policy of total clampdown by the powers that be to impress their principals will not last. Tell your economic managers that they need to justify their appointments by meaningful contributions to the economy rather than trying to protect and defend their appointments and positions.“
According to an analyst, the scarcity of forex in banks could be attributed to poor remittances and inflows from other major sources of foreign exchange such as import and export activities, but added that ‘there is need for monitoring and close supervision of the market.