Naira Pops as FMDQ Revises FX Pricing Policy
The naira appreciated by 1.9% to N1,455.59 against the dominant foreign currency, the US dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) as FMDQ revises its FX pricing policy.
The exchange rate struggles to claw back lost value amidst the central bank’s move to stop currency speculations. In its latest guideline, the apex bank is targeting local banks with the highest net foreign currency asset holdings with 24-hour sell-down demand.
The Naira remained at the N1,400 mark against the US dollar to close at N1,455.59 per dollar. Similarly, In the parallel market, the Naira continued to depreciate thus reaching N1,515 to the dollar.
In a note, CSL Stockbrokers said these new directives from the CBN are targeted at improving liquidity at the FX market, where rates have plummeted to as low as ₦1455.59/US$ at the official market and ₦1520/US$ at the parallel market.
With the directive and a 24-hour timeline for compliance, the CBN expects banks to sell down significant net long FX positions running into billions of dollars in 24 hours.
Earlier in the week, the CBN had warned authorised dealers to stop the unethical practice of reporting inaccurate and misleading information on transactions concluded in the financial market or risk facing sanctions.
The apex bank revealed that investigations carried out uncovered that authorized dealers sometimes reported lower transaction rates. “The practice by some FX market participants was to quote lower rates at the Investors and Exporters FX window while selling dollars at rates benchmarked against the parallel market rate”, analysts said.
Analysts at CSL Stockbrokers said this unethical practice is a fallout of the previous administration’s attempts at unofficially capping rates at which FX is supplied to the I&E window. The Central Bank of Nigeria (CBN) once again stressed that financial market transactions are to be conducted on a ‘willing buyer willing seller’ basis, and therefore prices are to be quoted and displayed transparently.
Adherence to this led to depreciation at the official window to about ₦1455.59 as of yesterday. In response, FMDQ announced revisions to the FX pricing methodologies. The investment firm explained that one of the main changes is that the publication of NAFEM spot opening rates has been suspended indefinitely.
To allow market participants to rely on real-time market data, banks and other dealing members have been strongly urged to consistently execute and report their FX market transactions accurately and promptly during trading hours on the FMDQ-designated FX Trading System. These changes are an attempt by the apex bank to stem the heightened depreciation of the Naira, especially at the parallel market, analysts explained.
The expectation is that the ability to price freely and transparently at the official window will boost liquidity at the official window and diminish arbitrage opportunities. The FMDQ stated that these changes would improve the accuracy and reliability of the NAFEX and NAFEM rates and make them more reflective of market conditions. Banks Face Risks over 24hrs FX Positions Sell Down
In the global commodity market, the price of crude oil experienced a decline, with Brent crude dropping by 0.68% to trade at $81.94 per barrel on Wednesday. Also, the West Texas Intermediate (WTI) crude oil decreased by 0.95% to trade at $77.08 per barrel. #Naira Pops as FMDQ Revises FX Pricing Policy Selloffs Provoke Spike in Nigerian Treasury Bills Yield
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