Wide Disparity in FX Rates to Drop as CBN Boost Liquidity

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Wide Disparity in FX Rates to Drop as CBN Boost Liquidity
Godwin Emefiele, CBN Governor

Wide Disparity in FX Rates to Drop as CBN Boost Liquidity

Wide  disparity in foreign exchange rates is likely to reduce as the apex bank moves to boost liquidity with weekly FX sales intervention.

The gap in FX rates, according to analysts, provide opportunity for currency arbitrage, and Nigerian panic purchase is not helping the economy.

Recently, as the economy is opening up gradually, there have been moves by the Central Bank of Nigeria (CBN) to boost FX liquidity.

As a result, some analysts who are on the positive side of the divide have started projecting some sorts of convergence in FX rates.

In their macroeconomic note, analysts said that disparity in foreign exchange rates will shrink as the CBN boosts liquidity.

In a circular, the CBN revealed plan to begin market intervention on September 7, 2020 as Federal Government of Nigerian announced the resumption of international flight.

Now, an investment firm, Cowry Asset Limited anticipates that the continue efforts of the CBN to eliminate the unnecessary intermediaries associated with FX transactions; coupled with its move to improve liquidity, stabilise the exchange rate, boost the external reserves and help reduce the upside risk of inflation rate which hit 12.82% in July 2020 will reduce widened disparity in rates.

Last week, Naira appreciated against the greenback at the Investors and Exporters Window (IEW) by 0.09% to close at ₦385.67/$.

Read Also: Naira Remains Resilient as CBN Sets to Resume FX Sales to BDCs

However, Naira traded flat at ₦381/$ at the Interbank Foreign Exchange market amid weekly injections of $210 million by the CBN into the FX market.

The breakdown showed that $100 million was allocated to Wholesale Secondary Market Intervention Sales (SMIS), $55 million was allocated to Small and Medium Scale Enterprises and $55 million was sold for invisibles.

Wide Disparity in FX Rates to Drop as CBN Boost Liquidity
Godwin Emefiele, CBN Governor

Also, Naira for dollar exchange rate remain unchanged at ₦472.00/$ and ₦477.00/$ respectively, at the Bureau De Change and the parallel market respectively.

Elsewhere, the exchange rate appreciated further for most of the foreign exchange forward contracts.

Forward contracts for 1 month, 2 months, 3 months, 6 months and 12 months rates appreciated by 0.15%, 0.22%, 0.32%, 0.58% and 0.99% respectively to close at ₦386.50/$, ₦387.36/$, ₦388.23/$, ₦391.00/$ and ₦402.55/$ respectively.

However, spot rate closed flat at ₦381.00/$.

“In the new week, we expect the widened disparity between different exchange rates to shrink, especially between the autonomous window and BDC segment, as CBN resumes the sale of FX to BDC operators in the near future”, analysts said.

More so, Cowry Asset said given the renewed efforts by CBN to boost foreign currency supply and plug leakages, it expects to see Naira appreciate against the greenback in most market segments.

Wide Disparity in FX Rates to Drop as CBN Boost Liquidity

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