As authorised foreign exchange (FX) dealers prepare to commence sale of US dollars from international money transfers to BDCs, the run-rate which Bureau De Change (BDC) operators hitherto enjoyed on the greenback has been halted.
FX dealers expect further convergence of the inter-bank and BDC markets rates over time. For instance, at the BDC segment, FX rate remained stable at N374.20/USD last week; showing further promise of an imminent drop.
Last week, the interbank FX spot market recorded turnover of $196.14million, with a daily average turnover of $39.23million.
This improved FX liquidity is coming on the back of growing confidence in the market. Foreign Portfolio Investment (FPI) trades line up to boost supply in coming weeks, a FX dealer told BusinessDay.
He said “this is very encouraging news, as it shows that the inter-bank market is beginning to show signs of functioning effectively, even without the intervention of the CBN.
“The inter-bank FX market close for the week ranged between $/N309.84 (low) and $/N330.12 (high), with an average rate of $/N318.81 for the week. The naira showed signs of appreciation as the market closed at $/N321.16 the previous week.” Of the total traded in the inter-bank FX market last week, the CBN inflow was negligible; less than 3%.
Meanwhile, in the preceding week, CBN participation was more, however, it was still not the major part of the trading, proving that the market is beginning to operate more effectively and efficiently without needing any participation from the CBN.
Data from the FMDQ website had showed that the recent decision by the CBN to raise interest rate is positively affecting deal flows at the interbank FX spot market.
Michael Famoroti, economic research analyst at Vetiva Capital Management in a recent commentary said, the move by the MPC is positive for the naira, adding that, “We expect that following this decision, the interbank market rate could retrace closer to the N300/USD level and if the CBN’s move to redirect liquidity via banks to Bureau De Changes (BDCs) proves successful, the gap between the interbank and parallel market rate could narrow in the coming weeks.”
Charlie Robertson, global chief economist at Moscow-based Renaissance Capital said, “The key point is that Africa is back – with two of the three biggest economies (Nigeria and Egypt) now making themselves investable again after an overly long period where FX policy deterred investors.
Robertson said that “as we progress through 2016, it is worth re-examining Africa again,”
Source: BusinessDay
