The ongoing weekly dollar supplies by the Central Bank of Nigeria (CBN) at the interbank market are expected to facilitate exchange rate convergence in the coming months, analysts have said.
Speaking on the development, the Managing Director, Financial Derivatives Company Limited, Bismark Rewane, said the convergence between the parallel and official rates, has started after the CBN’s sustained dollar interventions in the interbank.
He said: “Currency misalignment is part of the structural defects of the economy. The exchange rate has been and continues to be a major subsidy of the elite and the working class in Nigeria, even as approximate value of subsidy is $8.75 billion per annum.”
He said the CBN allocates $1 million weekly to Deposit Money Banks (DMBs) and $4 million to Travelex for sale to customers for personal expenses, basic travel, medical needs and school fees. According to him, banks are also expected to sell at 20 per cent markup (maximum) of the Interbank Foreign Exchange Market rate.
Rewane said although the market remains segmented with multiple rates attached to each of its segment, consistency in delivering weekly forex supplies could see the parallel market appreciate towards the Bureaux De Change rate of N400 to a dollar.
Thomson Reuters data had showed that the interbank forex market had on Monday traded at $540,000 in early deals at N375 per dollar, near a record low exchange rate hit last November. The local currency traded at a record low of N375.50 to the dollar last November on the official interbank market before it reversed its losses.
Rewane said increased borrowing and rising oil prices have seen reserves building up to $29 billion, even as recent forex initiatives by the apex bank will slow reserve accretion.
“Plans to build up reserves to $40 billion seem far-fetched with the new forex policy initiative, increased foreign borrowing and higher oil prices will support the CBN with the ammunition needed to ensure the forex market remains liquid,” he said.