The Nigerian naira experienced a significant increase in value, trading at 663.04 against the US dollar at the close of business on Friday.
This surge came after the Central Bank of Nigeria (CBN) introduced a floating exchange rate policy for the national currency, allowing it to fluctuate freely against global currencies. Within a span of 24 hours, the naira appreciated by approximately 5.9%, rising from 702.19 against the dollar on Thursday.
Data from the FMDQ Securities Exchange revealed that the naira reached 664.04 against the dollar at the close of trading on Wednesday, followed by 702.19 on Thursday, as directed by the CBN to remove the rate cap on the naira at the official Investors’ and Exporters’ Windows of the foreign exchange market.
This decision by the CBN was met with approval from the organized private sector and economists who anticipated that it would unify the multiple exchange rates in the country and bolster the foreign exchange (FX) market.
Consequently, buyers and sellers in the official FX markets are now able to determine rates based on their preferences, contrasting with the previous practice where rates were dictated by the CBN. While the official rate exhibited appreciation, the parallel market witnessed a depreciation, opening at 750 naira against the dollar and closing at 760 naira on Friday.
However, Morgan Stanley, a global investment bank, projected that the naira would appreciate at the parallel market rate, supported by the redirection of more flows through formal banking channels.
This shift is expected to lead to a convergence between the I&E rate and the parallel market rate.
In addition, JP Morgan expressed confidence that the official naira exchange rate to the US dollar would stabilize in the coming months, viewing recent policy announcements as positive developments that support Nigeria’s sovereign credit.
However, the financial services firm anticipated initial pressure on the local currency due to a monetary policy reset, potentially leading to an alignment with the rate on the black market.
The International Monetary Fund (IMF) also voiced its support for the unified exchange rate, with the Resident Representative for Nigeria, Ari Aisen, assuring the IMF’s assistance in implementing foreign exchange reforms in the country.
Aisen’s statement highlighted the IMF’s satisfaction with the authorities’ decision to introduce a unified market-reflective exchange rate regime, aligning with the organization’s long-standing recommendations.
Despite the unification of exchange rates, the CBN maintained its stance on the 43 non-eligible items banned from the forex market, as initially implemented under the previous governor, Godwin Emefiele. A Q&A document on the bank’s website reiterated that these items are not permitted to be funded through the I&E window.
Previous reports revealed that Nigerians imported goods worth 18.12 trillion naira from the CBN’s forex ban list between 2016 and 2022. Notably, commodities such as crude palm oil, vegetable and animal products, meat, vegetable fats and oils, steel products, rubber, plastics, clothing, and textiles were imported from various countries.
Another report indicated that despite the unavailability of forex for banned items, Nigerians imported five goods worth 543 billion naira in the first quarter of 2023.