Total NAFEX turnover tumbles to $131m following CBN FX unification move

• CBN’s rates adjustment to reflect FMDQ NAFEX rate receive thumbs-up from analysts

Charles Abuede

Following the recent move by Nigeria’s Central Bank to a more comprehensive, unified and market-driven foreign exchange rates by adjusting its official exchange rate to reflect the FMDQ independently and objectively determined NAFEX rate, the turnover at NAFEX declined from $212 million on Monday to $131 million on Tuesday.

Godwin Emefiele, the CBN governor confirmed on Tuesday at the 279th MPC meeting that the NAFEX or the Investors & Exporters’ rate will now be reported as the official exchange rate. There are still several rates in operation, but their number has decreased. This is another step towards unification with the narrowing of the differentials. The apex bank has made experts understand that since the beginning of the year, all government transactions have been converted using the prevailing NAFEX (I&E) rate. Therefore, this move, analysts opined, will likely have little effect on the markets.

The move towards a single exchange-rate system for the local currency is becoming a reality as the apex bank has before now, devalued the Naira by 7.6 per cent against the dollar and further replacing the fixed rate of N379 per dollar for official transactions to N410.25 to the greenback as found on its website after the currency defiled all interventions to retain its value.

However, Godwin Emefiele, the Central Bank Governor had said that the drop in crude oil earnings and the decline in foreign portfolio inflows (FPIs) had a significant impact on the supply of foreign exchange in Nigeria.

“In order to adjust for the decrease in the supply of foreign exchange, the naira depreciated at the official window from N305 per dollar to N360 per dollar and now hovers around N410 per dollar,” the CBN chief said.

Consequently, the unification move has been lauded by analysts who have said it will improve Nigeria’s currency management system while helping to meet the conditions of the International Monetary Fund (IMF) and investors for transparency.

Segun Ajibola, a professor of economics, Babcock University and past President, Chartered Institute of bankers of Nigeria (CIBN), said the apex bank is in a bid to defend the value of the local currency and achieve stability as there was little action the CBN could take due to its exposure to the foreign exchange market.

“The implication is, we are likely to witness cost-push inflation because inflation will rise and they will pass that to the end-users that are consumers, so the overall impact is that it will likely worsen poverty. The poverty index is likely to rise. It is important to continue to use locally produced goods because continuous reliance on imported items would put more stress on the exchange rate,” he said.

Meanwhile, the major purpose of the NAFEX window that was introduced in 2017 by the CBN was to boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions.