Despite Headwinds, Naira Appreciates Against US Dollar In Parallel Market

Despite a turbulent start of the week, the naira continued its significant recovery against the United States dollar at the parallel market.

The naira it was gathered, on Thursday, appreciated to N1,400 at the parallel section of the foreign exchange (FX) market.

The local currency gained 4.45 percent or N130 on Thursday, from the N1,530 it traded on Wednesday.

The recovery of the naira was as a result of series of reforms introduced by the Central Bank of Nigeria (CBN).

The CBN had ordered Deposit Money Banks to sell their excess dollar stock latest February 1, 2024 even as it warned lenders against hoarding excess foreign currencies for profit.

The new circular introduces a set of guidelines aimed at reducing the risks associated with these practices.

In the circular titled, “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks”, the CBN raised concerns over the growing trend of banks holding large foreign currency positions.

The latest circular came barely 48 hours after the CBN released a circular, warning banks and FX dealers against reporting false exchange rates, among others.

CBN warned all authorised dealers in the foreign exchange market to desist from reporting inaccurate and misleading information on transactions concluded in the financial market.

In a circular to all the market dealers, the central bank said ongoing investigations have revealed instances of underreporting of transaction rates and the practice of ‘second cheques’ on foreign exchange and fixed-income transactions.

The CBN had permitted financial markets transactions to be conducted on a ‘willing buyer willing seller’ basis, by which prices are expected to be quoted and displayed transparently.

According to the apex bank’s circular, many of the players in the market are reported to be flouting the order, thereby, causing distortions in the market.

However, the Chief Executive Officer of Cedrus Group, Olubusayo Adeniyi, said the reforms and policies of the CBN will start yielding results from the second quarter of 2024.

Speaking in Lagos, Cedrus CEO disclosed that the apex bank is working to ensure that some of the loopholes in the financial sector were blocked.

“The issue is that we are not being patient enough in Nigeria. We want to see results immediately but it doesn’t work like that. Many of the reforms rolled out by the CBN in 2023 will start to yield results in the two to three months or the second quarter,” he said.

According to the investment banker, some of the agents within the financial sector are exploiting these loopholes, the major reason for the continued depreciation of the value of naira at the foreign exchange market.

Adeniyi expressed optimism that the naira will regain value in the coming weeks as the CBN continues to block loopholes.

“What is causing the rise in the exchange rate is that certain people are taking advantage of the exposure of the government. That is why the CBN is charged with the responsibility of rolling out reforms and policies that will reduce that and that’s what we are seeing on banks.

“And in a couple of weeks, we will start seeing the capacity of the naira coming out and truly is not driven by economic forces. It is not a situation that calls for panicking. People should just do their business and those who have nothing to do with the forex should leave the dollar,” he added.

The CEO explained that the major problem was not scarcity of forex in the financial sector but a challenge of production across the sectors of the economy.

“Our focus should be on economic drivers. Production is the driver of every economy, when we’re not producing and we are consuming definitely will be on the other side. So, the capacity of our production is what we should focus on. And that’s what I did, I should think about what to walk daily.

“If we have more production, there will be more supply and there will be exports. And then if we have exports it will boost our external reserves and our local currency will rebound,” he said.