After opening at around N253 to the dollar on Monday, following commencement of the new foreign exchange regime, the forces of demand and supply pushed the Naira to N260 against the greenback at the interbank market before settling at N285/$.
However, traders said the central bank intervened and sold $530 million for N280 per dollar at a special auction and later sold a further $86.5 million directly on the interbank market at N281 to N285.
This, some traders said, could be taken as the prevailing exchange rate for the local currency.
The naira had traded just twice by midday, before the central bank held its special auction to clear a backlog of hard currency orders. Less than $1 million had changed hands, prompting an extension of the trading day to 5p.m.
This is even as the parallel market (black market) currency dealers were quoting the Naira at N325 to N345 to the dollar, up to 10 percent stronger than on Friday, on expectations that more hard currency liquidity on the interbank market would reduce demand on the street.
Reuters quoted Citi Bank analysts as having said in a note, “We suspect that the best way to talk about the new exchange rate regime is still as a managed float, but a managed float that is responsive to market forces. The new structure does provide a platform for the CBN to easily step further away from the market.”
Similarly, Non-deliverable forwards – contracts used to bet on future exchange rate moves – priced the Naira at N302 per dollar in one month’s time.
Ayo Teriba, Chief Executive Officer (CEO) of Economic Associates was quoted as having said that “This is good news for the majority of Nigerians. The biggest gain is on the appreciation of the parallel market because the parallel market devaluation has destroyed domestic activities, with prices of local goods skyrocketing. Imported goods also have doubled and tripled in price.”
According to Bloomberg, at about 11:02am on Monday, the Naira had moved to N264 to the dollar, with dealers expressing extreme caution in proceeding with transactions.
A few minutes later, the Naira was up to N260, which was the initial predicted position the Central Bank of Nigeria (CBN)-FMDQ OTC guideline was planned to work with.
Earlier, the CBN said primary dealers of forex (banks) would be expected to make deals at N260 to the dollar with a band from N260 to N270, while the bank expressed optimism that the currency would finally settle at 250 to the dollar.
As at 2pm, the Naira at interbank market, traded at N260.50 to a dollar, while the daily average held at N247.
Meanwhile, CBN has announced plans to clear all existing backlog of Foreign Exchange demand estimated at $4 billion.
The Acting Director of Communications, CBN, Mr Isaac Okorafor, who made this known to newsmen, on Monday, added that the move was to ensure the survival of the inter-bank forex trading under the new forex guidelines, which took effect from Monday, June 20.
Okorafor said all existing legitimate forex demand for imports, school fees and medicals, among others, would be met.
He said: “In order to engender confidence, ensure credible price formation and sustain the integrity of the Nigerian inter-bank forex market, the CBN has resolved to clear all the back log of forex demand in the country. This will be done through spot and forward settlements.”
The Nigerian naira plunged to 280 against the dollar at the interbank market on Monday evening as the Central Bank of Nigeria (CBN) sold foreign exchange to 21 bidding banks to clear the forex backlog and solve liquidity problems.
The parallel market rate dropped to between 315 and 330 to the dollar on Monday.
“This is good news for the majority of Nigerians,” Ayo Teriba, CEO of Economic Associates consultancy, said of the devaluation, adding that “The biggest gain is on the appreciation of the parallel market because the parallel market devaluation has destroyed domestic activities, with prices of local goods skyrocketing.”
Experts said the new currency policy should halt speculation by some of the favored few who had access to “cheap” dollars.
“We are optimistic that the days where the majority of Nigerians suffer for the benefit of a few as a result of monetary policy are nearing their end,” said SBM Intelligence.
Meanwhile, an economist, Dr Aminu Usman says the new Foreign Exchange (FX) policy recently introduced by the Central Bank of Nigeria (CBN) will encourage portfolio investors to return to the economy.
Usman, a lecturer at the Department of Economics, Kaduna State University, Kaduna said this in an interview with the News Agency of Nigeria (NAN) in Abuja on Monday.
He said that the return of portfolio investors might invariably increase the supply of FX to the market and enhance liquidity.
Usman said that the FX policy was a welcome development even if only to close the gap between the two markets which fuel corruption and other abuses.
He said there would be improved liquidity which may cause the rates to rise in favour of the naira.
The don, however, said that the Federal Government had technically devalued the Naira with the introduction of the policy, which he said the government had resisted all along.
“The rates adjustment may not cause the kind of inflationary pressure expected to happen, simply because market had already adjusted.
“The common man on the street is already aware that dollar rate has gone up and prices of commodities have gone up.
“This announcement will not change that view significantly. However, as the implementation begin, we will see the market focus and project likely scenarios going forward,’’ Usman said.