WHY THE NAIRA PLUNGED IN ALL FX MARKETS

The steep decline in the value of the naira in two days was caused by a mix of requests from 43 items restored to access FX.

Tuesday and wednesday saw an increase in pressure on the FX market as the naira dropped to its lowest level with high demand after the Central Bank of Nigeria's (CBN) decision to establish a single forex market rate.

Eight years after being banned from accessing FX, the supreme bank reinstated the 43 products last Thursday in a move that many believed would bring in a single exchange rate.

Investors' and Exporters' (I&E) forex window on Tuesday, the value of the naira plunged to N848.12 per dollar, the lowest level seen since the facility's inception in 2017.

On Wednesday, the naira on the parallel market, fell to its lowest level ever, averaging N1,084 per dollar. In comparison to N1,050 sold during Tuesday's morning trading session, this indicates a 3.23 percent devaluation.

However, abokifx, an online platform that compiles currency rates, offered dollars at N1,080. Some street vendors sold one dollar at N1,100, while others did it at N1,095.

The desire for the 43 products that have been reinstated, but it's also the time of year when demand for dollars tends to increase because of demands related to school tuition and holidays. Thus, a mix of factors—of which the 41 items may only be one—may be at play, according to Yemi Kale, partner and chief economist at KPMG Nigeria.

The distance between the I&E window and parallel market is extremely wide, according to Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise.

Therefore, the N777/$ rate cannot possibly be a realistic rate. The CBN is working to gradually reach the willing seller and willing buyer rate.

The naira plummeted throughout markets on Tuesday and Wednesday, widening the exchange rate differential between the official and parallel market divisions of the foreign currency market by more than 100%.

On Wednesday, the difference between the official and unofficial foreign exchange markets closed at N236 per dollar as opposed to N1.83 on June 22, 2023, following the implementation of foreign exchange reform.

According to data from the FMDQ, keen buyers and willing sellers made the highest bid of N981/$1 and the lowest bid of N700/$1 during the FX auction on Tuesday.

The daily FX market turnover increased to $134.28 million from $43.09 million on Monday by 211.62 percent.

The naira/dollar exchange rate converged on Tuesday, June 21, 2023, ending at N756 in both markets after the Central Bank of Nigeria combined the FX windows.

It reduced after the CBN's most recent adjustments to its FX policy, and rates started to converge.

According to the CBN, it will occasionally intervene in the Nigerian FX market to increase and preserve price stability.

These operations, according to the CBN, will improves liquidity.

According to the Central Bank of Nigeria, it would continue to promote order among all participants in the Nigerian FX market in order to ensure that market forces determine exchange rates in accordance with the Willing Buyer-Willing Seller concept.

The CBN reiterates that current FX rates should be referred to from sources including the CBN website, FMDQ, and other recognized or designated trading platforms in order to promote price discovery, transparency, and confidence in the FX rates.