The Nigerian foreign exchange (forex) market is segmented with multiple exchange rates practice. The most important rate is the Investors and Exporters window (IEFX).
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Financial Derivatives Company (FDC) Limited’s Managing Director Bismarck Rewane said no less than 55 to 60 per cent of Nigerian forex transactions are traded at this window.
Quoting the FDC Monthly Economic report for December, the financial analyst said the Central Bank of Nigeria (CBN), most exporters and investors use this window.
According to him, the window serves as not only a source of price discovery but also a barometer for measuring potential and actual apex bank’s intervention in the market.
Rewane listed some of the exchange rate determinants as: balance of payments, capital inflows and trade balance.
“Currency volatility persisted at the foreign exchange rate market. In the period under review, the naira appreciated 0.26 per cent to N566.5/$, at the parallel market, from N568/$ at the beginning of the month. This is attributable to a 199 per cent increase in forex supply as the CBN increased its intervention at the foreign exchange market,” he said.
The financial analyst explained that at the I&E window, the naira traded between N413.28/$ to N415.1/$. The average turnover declined significantly by 26.43 per cent to N153.98 million in November from N209.29 million recorded in October.
“We expect the CBN to continue. Travel restrictions could weigh on oil prices, given OPEC+’s decision to continue with their plans to expand output by 400,000bpd. This could weigh on oil prices and Nigeria’s forex receipts, limiting the CBN’s capacity to continue with its forex interventions at the foreign exchange market. The naira could depreciate at the parallel market as a result,” Rewane said.
The Nation reports that sustained intervention at the I&E window will help to ease forex pressures and lead to an appreciation of rates.
This will reduce import costs and tame inflationary pressures.
The report said November saw the gross external reserves reverse its accretionary (growth) trend and maintain steady depletion throughout the month.
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