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Naira gains at NAFEX window as CBN moves to allay early devaluation fears

The Nigerian Naira appreciated significantly against the dollar to close at N394.30/$1 at the NAFEX window.

The exchange rate between the naira and dollar closed at N394.3/$1, on January 4 2020, the first trading day of 2021 at the Investors and Exporters’ (NAFEX) window where forex is traded officially. This is a sharp reversal and an appreciation from the N410.25 recorded on the last day of trading December 31, 2020.

An injection of forex by the central bank forced prices lower on Monday reversing the depreciation recorded on the last day of trading, according to a Nairametrics report.

However, at the black market where forex traded unofficially, the exchange rate remained stable at N470/$1 on Monday, January 4, 2021. The exchange rate at the parallel market closed at N470/$1 on the last day of trading December 31, 2020.  It has been trading at N470/$1 since the 29th of December 2020.

Image Source: Nairametrics

The exchange rate disparity between the parallel market and the official market widened again to N75.7 representing a 16% devaluation differential.

It is worthy of note, that last Thursday, December 31, 2020, the central bank allowed the exchange rate to depreciate to N410.25 as a late demand surge forced prices higher. Even though the highest price for the day was N411.05 the market still closed lower at N394.3 blowing any initial belief that a devaluation had occurred last week.

Devaluation supporters who had expected this to be a nudge towards “market reality” will be surprised by the appreciation recorded on Monday suggesting that the central bank will continue with the defense of the local currency in the new year. On the flip side, policy supporters will cite this as the effect of market forces.

Nigeria In Focus:

Population: 206.6 million (Compared to South Africa's 59.6 million)

GDP: $504.57 billion (Compared to South Africa's $369.85 billion)

GDP Per Capita: $2,465 (Compared to South Africa's $6,193)