Exchange Rate Adjustment - IEFX Rate Devalued Briefly Before Appreciating


Friday, January 15, 2021 / 3:25 PM / by FDC Ltd / Header Image Credit: SUN Nigeria

Proshare Nigeria Pvt. Ltd.

The Central Bank of Nigeria (CBN) devalued the naira by 3.90% to N410.25/$ at the Investors and Exporters window (IEFX) on Thursday December 31st. This is the third exchange rate adjustment in 2020, triggered by the plunge in oil prices, which negatively affected Nigeria's forex receipts. Crude oil and gas exports account for over 90% of Nigeria's forex earnings. The rate has since appreciated to N393.83/$


The World Bank and the IMF have recently stepped up calls on Nigeria to accelerate currency reforms which include unifying multiple exchange rates around the IEFX window and gradually shifting to a market-determined exchange rate mechanism. According to the IMF, a unified and flexible exchange rate should ease external imbalances and achieve economic growth. A change of foreign exchange policies was also a major conditionality for the World Bank to approve a $1.5bn loan to the Nigerian government.


The CBN also recently re-introduced some foreign exchange rules to prop up the naira. These include the payment of remittances in dollars to beneficiaries by international money transfer operators. This has boosted dollar liquidity and eased forex pressures in the parallel market.


The adjustment will mop up liquidity from the system and push up interbank interest rates as a significant part of forex transactions are carried out at the IEFX window. Import costs are also expected to rise, further fuelling imported inflation.


In view of the adjustment, we expect to see a further convergence of the multiple exchange rates towards the IEFX window. Given that the premium between the IEFX and the parallel market rates is currently at about N60, it is also likely that another devaluation is on the cards in the coming months.

Proshare Nigeria Pvt. Ltd.

Related News

  1. Forex Trading: Prospects for the Nearest Future
  2. Gross Official Reserves Declined by US$40m in December 2020 to US$35.37bn
  3. Implications of CBN's Adjustment to the I and E Window Rate
  4. Diaspora Remittances in Nigeria: Examining The New CBN Policy
  5. Foreign Reserves Remain Pressured
  6. What No One Told You about "How to Make a Million Dollars Trading Forex"
  7. BAFI Awards: HotForex Wins The 2020 "Forex Trading Platform of The Year" Award
  8. FX Scarcity Biting Hard
  9. Gross Official Reserves Decline by US280m in November 2020 to US35.4bn
  10. WorldRemit Announces A USD Payout Option In Nigeria
  11. Improving Remittance Inflows into Nigeria
  12. Get Your Remittances in Dollars - Ecobank
  13. CBN Re-Amends Circular on Procedures for Receipt of Diaspora Remittances
  14. A Temporary Reprieve from FX Outflows
  15. CBN Amends Procedures for Receipt of Diaspora Remittances
  16. Pressure on Parallel Market Rate: Any Moderation in Sight?
  17. FX Shortages Stifle Downstream Oil Sector Deregulation
  18. November 2020 Economic Insight: Dollar Rationing to Persist on Meagre Inflows
  19. Take the Stress Out of Election-Related Market Indecision And Uncertainty With Covesting
  20. FX Inflows Mostly Autonomous

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Related News