Speculative activities behind disparity in forex rates – Expert

The Chief Economist and Researcher at Cowry Asset Management Limited, Charles Abuede has attributed the widening disparity between Naira exchange rates at the official and parallel markets to activities of currency speculators.

President Bola Tinubu during his inauguration speech, said he was going to reform the policies in the forex market with a view to strengthening the Naira in order to achieve a N300/$ exchange rate in the short term and N200 in the long term.

The rates have gone from converging to creating a gap of N219.75–N68.88 shy of the N288.63 gap recorded a day before the CBN devalued the naira in June.

The Central Bank of Nigeria (CBN) devalued the Naira by 40 per cent in June, pushing the dollar rate to N664.04 in the official market, from N471.67 the preceding day and response, N760.3, up from N755.7 at the black market.

However, gains from the policy change have been lost in the three months, with the exchange rate accelerating to N773.25 in the official window and N993 in the black market as at Monday.

Abuede in a note said there are some underlying issues that warrant attention and the failure of banks to supply an adequate amount of FX to alleviate pressure in the official market pushes demands to the open market.

He said the persistent supply-demand imbalance continues to fuel speculative activities, resulting in the substantial disparity in both FX markets.

He said reconsidering the ban on the 42 items and increasing supply could strengthen the naira and reduce the parallel market patronage.

“Since the inception of the investors and Exporters window in 2017, the CBN initiated these restrictions to protect local industries and enhance import substitution efforts,” Abuede

“However, the desired impact has not materialised, leading importers to seek easier access to FX in the open market, resulting in heightened demand for dollars for dollars on the parallel market.