CBN Cuts Exchange Rates To Four

Central Bank of Nigeria (CBN) has cut the exchange rates to four.

Gatekeepers News reports that the Central Bank of Nigeria (CBN) has reduced the operation exchange rates from seven to four.

The exchange rate review by the apex bank which is in line with its rates harmonisation policy is a step further to unifying multiple exchange rates.

The four operational rates are the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) which is at N410.93/$; Investor and Exporter FX Window (IEFX) at N410.75/$; parallel market rate which is N502/$ and International Air Transport Association (IATA) rate which is at N420/$.

Gatekeepers News gathered that before the last naira devaluation, the CBN had pegged the rates into seven categories. The official rate was at N379/$, the NAFEX at N411/$, the IEFX rate at N412/$, while the parallel market rate was at N485/$, the IATA rate – N420/$, Interbank rate at N379/$ and Bureaux de Change Rate at N383/$.

The Managing Director/CEO of Financial Derivates Company Limited, Bismarck Rewane in an email note to investors at the weekend, said the NAFEX is now the official rate indicating a move towards convergence.

Rewane added that as an indication of more transparent price discovery and settlement system operation, forex transactions are now strictly system generated and not through mobile phones.

Before the adjustments and adoption of NAFEX, analysis of the naira rate showed that the parallel market rate stood at N485/$, while the official market rate stood at N379/$, which created a difference of N106.

Following the adjustments and adoption of NAFEX, the parallel market rate changed to N502/$, official market rate – N410.93/$, creating a difference of N91.07 thereby closing the rate gap by N14.93.

Rewane stated that “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, therefore, projected that the naira should appreciate and convergence around the IEFX rate, after the speculative trading and panic buying.

According to him, “Parallel market rate will oscillate between N470/$ to N490/$ in July while the CBN is to adopt a crawling peg strategy in third quarter.”