Interbank, parallel rates’ convergence not automatic, say experts

The long sought convergence of the inter-bank and parallel market rates will not be realised in the immediate going by the assessments of financial experts.

Besides, they said the continued lock out of the 41 items from the official foreign exchange window will sustain for parallel market operations and the wide gap estimated at about N70.

The Chief Executive Officer of Graeme Blaque Advisory, Zeal Akaraiwe, stated that the expectations of black market rate convergence with the official rate now are “early calls”.

The head of the financial advisory company with specialty in derivatives risks, however, pointed out that what we should be talking about is the divergence that is acceptable.

“The combination of the lack of optimal dollar liquidity in the interbank market along with the pressure on the unofficial market by the 41 banned items will not allow for a rate convergence at all.

“We may need to reconsider the approach to the banning of the 41 items, amongst other things, in order see some of the desired positive in the unofficial market,” he said.

He also advised regulatory authorities to produce a well thought-through policy changes regarding Bureau De Change operations, as a way forward to discovering true price of the currency, followed by cohesive fiscal policy support.

The Chief Executive Officer of Cowry Asset Limited, Johnson Chukwu, who affirmed that the flexible foreign exchange policy would certainly have positive effect on the local unit, reiterated that businesses only seek exchange rate stability to enable them plan, not necessarily the revaluation/devaluation of the Naira.

“For those expecting Naira to appreciate, it would be feasible in the medium to long-term when the country’s foreign exchange earnings improve and previously active but now dormant sources of foreign exchange inflows get reactivated, particularly Diaspora remittances, foreign portfolio investments and foreign direct investments and non-oil exports.

“The new policy has eliminated some distortions in the economy by creating a fair playing field as against the previous arrangement where some people accessed forex at N197/$ while others sourced theirs from the parallel market at N380/$,” he said.
For a currency expert and Research Analyst at FXTM, Lukman Otunuga, a strong feeling of positivity pervaded the economy in June following the unexpected decision to de-peg the Naira against the dollar in an effort to ease the severe pressures on external reserves and foreign exchange supply shortages.

“With fears elevated that Nigeria could enter a potential technical recession in second quarter, the swift decision taken by CBN consequently boosted investor sentiment.

“However, while it was expected that the Naira would depreciate heavily post de-peg as the natural forces of supply and demand create an equilibrium price, it really does not reflect on the official exchange that showed N281 against the dollar.

“The decision taken by the central bank to float the Nigeria may have been a painful move in the short term, but this could be the first critical steps needed to steer away from oil reliance, while also promoting economic stability in the long term.

“With liquidity still lacking, coupled with the 41 banned items, which cannot be purchased on the official exchange, markets participants will be naturally attracted to the black markets,” he said.

Also, the Executive Director, Investment Finance, BGL Capital Limited, Olufemi Ademola, affirmed that demand is currently driving the exchange rate rather than the CBN fixing the prices, lamenting that presently, CBN is the only supplier of foreign currency to the market.

“With the clearing of the backlog of forex demand and the introduction of forward contracts and futures market, it is expected that going forward, future demand would be lower and even over the period as artificial demands and speculative activities moderate significantly.

“Therefore, as more forex supplies enter the market from multinationals and other exporting companies and foreign investors, the rate is expected to moderate in the very near future.

“Additionally, the difficulty in accessing the interbank market by end users, especially retail and individuals due to the stringent requirements for accessing the market otherwise, is leading to the continued patronage of the black market by the end users. These are making the efforts of the CBN to appear futile,” he said.