Lack of transparency, price formation delay recovery of FX market – Businessday

Despite signs of recovery as seen in the turnover in the Spot FX market between Authorised Dealer banks and their clients, analysts say lack of improved liquidity and credible price formation, among others may be delaying the much needed liquidity.

Consequently, they said at the weekend that that the success of the CBN’s reforms may continue to be limited if market confidence is not robust. “Government’s economic transformation requires a credible and transparent FX market”, they added.

However, trading amongst Authorised Dealers in the Spot FX market improved about four times during the week ended September 2, 2016, as $242.57million was recorded during this period, a sign of recovering in FX market trading activity amongst the banks.

Also, the inter-bank FX market closed at $/N310.64 in the review week, showing an appreciation of the naira when compared with the close of $/N314.77 from the preceding week.

This appreciation was linked to most corporate treasurers who believe the spot FX level may be around $/N314.77.
“The market is definitely struggling with achieving a consistent rhythm. The market average daily turnover prior to the start of the currency peg in 2015 was $1billion against current average daily turnover of about $200million”, dealers said over the weekend.The analysts further “believe the market will only achieve improved liquidity on the back of credible price formation and full transparency. The success of the CBN reforms may continue to be limited if market confidence is not robust.”

However, in the week ended September 2, 2016, the spot FX market showed a 100.34% increase when compared to turnover in the preceding week.
Spot FX market turnover between banks and their clients stood at approximately$1.16billion, a daily average of turnover of $232.05mm, for this period as the Authorised Dealers previously suspended from the inter-bank FX market resumed trading.
Travelex rate for sale of US dollars was maintained at $/N356 in the week ended September 9, 2016