The Central Bank of Nigeria (CBN) has moved a step further to unifying multiple exchange rates. It reduced the number from seven to four.
The exchange rate review by the apex bank is in line with its rates harmonisation policy. It showed that only four rates are now operational.
The four operational rates are: the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) which is at N410.93/$, Investor and Exporter FX Window (IEFX) which is at N410.75/$, parallel market rate which is N502/$ and International Air Transport Association (IATA) rate at N420/$.
Investigations showed that before the last naira devaluation, the CBN pegged the rates into seven categories. They are official rate at N379/$, the NAFEX at N411/$, IEFX rate at N412/$.
The others are parallel market rate at N485/$, the IATA rate at N420/$, Interbank rate at N379/$ and Bureaux de Change Rate at N383/$.
In an email note to investors at the weekend, Managing Director/CEO Financial Derivates Company Limited, Bismarck Rewane, said the NAFEX is now the official rate indicating a move towards convergence.
He added that forex transactions are now strictly system generated and not through mobile phones, an indication of more transparent price discovery and settlement system operation.
Analysis of the naira rate showed that before the adjustments and adoption of NAFEX, parallel market rate stood at N485/$, while official market rate stood at N379/$, thereby creating difference of N106.
After the rate adjustments and adoption of NAFEX, the parallel market rate was N502/$ and official market rate N410.93/$, creating a difference of N91.07 thereby closing the rate gap by N14.93.
Rewane said: “The naira is approaching its fair value as multiple exchange rates converge. At N410.75/$ the currency is overvalued by 19.30 per cent.”
He projected that after the speculative trading and panic buying, the naira should appreciate and convergence around the IEFX rate.
“Parallel market rate will oscillate between N470/$ to N490/$ in July while the CBN is to adopt a crawling peg strategy in third quarter,” Rewane projected.
Trading Desk Manager, AZA, a global forex trading platform, Murega Mungai, told investors that the market had continued to digest the impact of the CBN adopting the NAFEX as its official exchange rate.
Mungai said the recent rise in global crude oil prices had not fed through into increased revenue from oil exports while projecting sustained pressure on the naira in the coming days.