Ahead of the next official trading on Monday, the naira showed signs of response to policy reversal by the Monetary Policy Committee (MPC), appreciating N2.66 yesterday to close at N150.1625 at the inter-bank foreign exchange (forex) market.
The MPC had Wednesday ordered banks to revert to the old Retail Dutch Auction System (RDAS). Under RDAS, banks are required to put in writing what their clients intend to import with the forex sort for.
But under the former Wholesale Dutch Auction System (WDAS) banks simply sourced for forex and disposed to clients without the apex bank or the authorities knowing what the forex are meant to be used for.
The idea is that under the former system of WDAS, financial institutions had the privilege of selling to speculators who will in turn adopt measures that will create artificial scarcity, thus making demand to seemingly exceed supply.
But with yesterday’s announcement, the market appears to be correcting itself already.
Under the new arrangement, market watchers say they expect banks and Bureaux de Change (BDCs) to source forex from oil multinationals, export proceeds and any inflows from offshore investors.
It is expected that the direction of forex rate will become clearer Monday when the Central Bank of Nigeria intervenes officially in the market.
The story was however different Wednesday, even after the CBN governor briefed the media on the series of streamlining to be expected soon.
On Wednesday, naira depreciated from N151/$ to N152.82/$. But expectations were that exchange rate would drop, at least marginally.
Yesterday, the confidence seen in the inter-bank market was missing at the parallel market as the dollar exchanged for about N170/$.
With the coming into force of new regulations on Monday, bids for the purchase of foreign exchange must be cash-backed and funds purchased can only be used for eligible transactions, in an effort to flush speculators out of the market.
“The naira appreciated in reaction to the central bank’s new rules, which are expected to improve dollar liquidity in the system and consequently strengthen the value of the naira,” one Lagos-based foreign exchange dealer said.