Naira finding ‘true value’ as CBN removes spread limit

The Nigerian naira is inching towards its true value at the interbank market as the Central Bank of Nigeria (CBN) has removed the initial 50 kobo spread limit, in an attempt to boost liquidity.

The naira closed on Friday at 290.25 to the dollar at the interbank market, after the spread peg was removed, falling further to 294/$1 as at 2:07pm on Monday. Intraday trading has the naira revolving between 283 and 294.

On the parallel market, naira was trading between 360 and 366 at leading commercial hubs across the nation.

According to sources, the apex bank may reintroduce the spread limit, after the market may have become “sufficiently liquid”.

Lukman Otunuga, the FXTM research analyst, believes that the move by the apex bank could be the first true step to shielding the economy from external shocks.

“The elevated concerns over a potential technical recession in Nigeria have forced the Central Bank of Nigeria to relinquish its stealth peg to truly allow the Naira to be determined by the natural forces of supply and demand,” he said.

“Since in the initial de-peg in June there have been growing speculations over the CBN intervening which simply repelled foreign investors consequently pressuring the economy further.

“This development simply added to the repeatedly depressed oil prices and declining oil production from renewed militancy which noticeably soured sentiment towards the Nigerian economy.”

Otunuga added that the naira could depreciate further in the days ahead, but added that this will close the gap between the parallel and interbank markets.

“Although there may be concerns of inflation spiralling out of control as the Naira finds its true value in the short term, this could be the first true steps for the nation to shield itself from external risks.

“With the parallel and official markets potentially closing the gap as the Naira flee floats, liquidity could increase as investors send their dollars to the official exchange.

“As of now, the Naira trades around 360 to the Dollar and could depreciate further as a combination of rising Fed rate hike expectations and ongoing fears over the domestic economy encourages investors to install another round of selling.”