Currency traders see convergence of exchange rates on increased foreign interests in Nigeria’s equities

Nigeria’s multiple exchange rates are heading for near-term convergence on the back of growing positive sentiments in the country’s equities market that has seen inflows of foreign investment and foreign currencies, market analysts and currency traders said Friday.

“We are beginning to see some international investors returning to thestock market,” a research analyst, Olabibi Ayodeji told Reuters.

Another group of analysts who spoke to Businessamlive said the current developmentwould eclipse most of the foreign exchange market segments, ifavailability is assured, thereby making rates to converge.

They said the re-emergence of offshore interest in the stock market had boosted dollar inflows to the economy, leading to a gradual exchangerate convergence.

“The current multiple exchange rates will go away, not with a fiat but with market developments and realities,” a trader said.

The convergence is almost here as the parallel market and NAFEX rates have converged at N365/$ Friday, while interbank at N325/$ and CBN official rate at N305.75 are not far off .

Specifically, the naira closed at N365 to the dollar at the parallel/black market on Friday, against N370 per dollar it
closed on Thursday.

Meanwhile, the naira is expected to strengthen against the United States dollar in the coming week as offshore investors pile into locals stocks, currency and financial, analysts have said.

According to them, the naira will likely strengthen against the dollar in the coming days as more offshore investors buy up local stocks after MSCI increased the country’s weighting in its frontier market index.

Nigeria’s multiple exchange rates has deterred investment in its stocks and bonds, but with the introduction of the investors and export window, which has some measure of predictability, investors have started to return to the market. This is seen at the equities market in the past month.

The CBN introduced the so-called Nafex window for investors and exporters on April 24, which is overseen by FMDQ and wherein the naira has been allowed to drop to its black-market rate. The currency was quoted at 365 per dollar in the Nafex market on Friday, while trading same at N365 on the street.

According to Bloomberg reports, the CBN and Lagos-based FMDQ OTC Securities Exchange are taking a “phased approach toward a single
foreign-exchange market.”

“There is opportunity for convergence and there is no better time for it,” Bola Onadele, chief executive of FMDQ said in an emailed response to questions from Bloomberg on Thursday.

“It must be on every participant’s radar. However, the multiplicity of rates will be dealt with probably over a period,” he said.