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The Nigerian Naira exhibited a notable 1.9% appreciation, reaching N1,455.59 against the predominant US dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM), following the revision of the FX pricing policy by the Financial Markets Dealers Quotations (FMDQ).
This positive movement in the exchange rate comes amid efforts by the Central Bank of Nigeria (CBN) to curb currency speculations. The recent guideline issued by the apex bank specifically targets local banks with significant net foreign currency assets, requiring a 24-hour sell-down demand.
The official exchange rate held firm at the N1,400 level against the US dollar, closing at N1,455.59 per dollar. Conversely, in the parallel market, the Naira continued to experience depreciation, reaching N1,515 against the dollar.
In response to the CBN’s directives, CSL Stockbrokers noted that the aim is to enhance liquidity in the FX market, where rates have declined to as low as ₦1,455.59/US$ at the official market and ₦1,520/US$ at the parallel market.
The CBN, enforcing compliance within a tight 24-hour timeframe, expects banks to sell down substantial net long FX positions, amounting to billions of dollars.
Earlier in the week, the CBN cautioned authorized dealers against the unethical practice of reporting inaccurate and misleading information on financial market transactions, threatening sanctions for non-compliance. Investigations revealed instances where dealers quoted lower rates at the Investors and Exporters FX window while selling dollars at rates pegged against the parallel market rate.
This practice, identified by analysts at CSL Stockbrokers, is linked to previous attempts to unofficially cap rates at which FX is supplied to the Investors and Exporters window. The CBN reiterated the need for transactions to adhere to a ‘willing buyer willing seller’ basis, emphasizing transparent quoting and displaying of prices.
In response to the depreciation at the official window, FMDQ announced revisions to the FX pricing methodologies. Notably, the publication of NAFEM spot opening rates has been suspended indefinitely. Banks and other dealing members are urged to accurately and promptly execute and report their FX market transactions during trading hours on the FMDQ-designated FX Trading System.
These changes are strategic measures by the CBN to mitigate the Naira’s depreciation, particularly in the parallel market. The adjustments aim to facilitate free and transparent pricing at the official window, enhancing liquidity and reducing arbitrage opportunities. FMDQ expects these modifications to enhance the accuracy and reliability of NAFEX and NAFEM rates, aligning them more closely with market conditions.
In the global commodity market, the price of Brent crude dipped by 0.68% to trade at $81.94 per barrel, while West Texas Intermediate (WTI) crude oil declined by 0.95%, trading at $77.08 per barrel.
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