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The Nigerian naira on Friday recorded tremendous improvement against the dollar by closing on a good note.
On Friday, the naira recorded further gain against the dollars closing at 365 to a dollar. The local currency closed at 367/dollar on Friday, after closing between 367/dollar and 368/dollar for most days of last week. The local unit had closed at 371/dollar the previous week, after rising to 374/dollar from 382/dollar.
Currency analysts have said they expect the naira to be stable across the board in the near term on increased dollar supply to both the official interbank window and the black market.
According to Reuters, the Central Bank of Nigeria has been intervening on the official market to try to narrow the spread between the official interbank and black markets.
The CBN has sold over $4bn since February, improving dollar supply and providing support for the naira.
The Acting Director, Corporate Communications, CBN, Mr. Isaac Okorafor, said there were plans by the apex bank to make necessary interventions in the forex market this week, in line with its earlier resolve to achieve forex rates convergence and liquidity in the market.
The recent gains recorded by the local unit have brought the CBN closer to its plan to achieve rate convergence.
However, economic experts have said that whichever way the regulator wants to achieve this convergence (either around the lower band of N305/dollar, mid-point band of N320/dollar or around the upper band of around N360/dollar), the country has a huge price to pay.
According to them, achieving convergence around the official rate of N305/dollar will take a long time as the CBN does not currently possess the stock of forex to push the parallel market rate from the current N380/dollar to the official rate level of N305/dollar.
Conversely, the experts argued that to achieve rate convergence at the upper limit of say N360/dollar, the pump price of Premium Motor Spirit (petrol) might need to go up significantly from the current N145 per litre.
According to them, oil marketers currently access forex from the CBN at N305/dollar.
Any attempt to achieve rate convergence around the upper limit of around N360/dollar will force oil marketers to increase the pump price of petroleum products.
This, experts said, would have severe inflationary pressure on the economy, causing general increase in the prices of several goods and services.
The central bank may need to decide what it intends to achieve.
“The choices are left with the monetary authority (the CBN) to determine whether they want to achieve rate convergence at the lower band or at the upper band,” the Managing Director, Cowry Assets Management Limited, Mr. Johnson Chuwku, said
“If you want to achieve rate convergence at the upper limit, it will affect petrol price. If it has to be at the lower limit of say N305/dollar, and this cannot happen overnight,” he added.