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Exchange Rate: CBN moves to settle NDF contract in February

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In a bid to control the pressure on naira, the Central Bank of Nigeria (CBN) has expressed its readiness to settle its one-year Non-Deliverable Forwards (NDF) contract 0n February.

Techeconomy.ng understands that the NDF is a closely watched indicator of the direction of the exchange rate in the future.

The non-deliverable forwards are always referenced against the spot rate of the exchange rate between the naira and the dollar.

For an instance, a firm may need $1 million in December 2021 and today’s exchange rate is at N395, but the CEO of the firm might be afraid that the exchange rate may drop to N400 by December.

If the firm pays for the dollar today, it will cost N395 but if it waits till December, it will pay N400 which is N82 more. This could wipe off a significant part of the firm’s profit.

Reacting to the central bank’s plan, analysts suggest that the current CBN official exchange rate of N379/$1 can also be devalued soon, while the exchange rate at the I&E window could also weaken to N415/$1.

The exchange rate between the naira and dollar closed at N395/$1 on Tuesday despite recording an intraday high of N416.95 according to data from the FMDQ.

At the parallel market, Nairawatch reported that the exchange rate closed at N480/$1. Recall that the CBN had said the parallel market cannot be used to determine the true value of the naira relative to the dollar. Instead.

In a bid to boost the local currency, the apex bank introduced several foreign exchange policies aimed at curtailing excess demand for forex and improving liquidity.

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