Naira forwards rose to record highs and volatility surged on Monday following the removal of a limit on bid-offer spreads by the Central Bank of Nigeria on Friday.
The development raises expectations that the naira is set to extend declines as it trades more freely, according to a Bloomberg report.
Three-month non-deliverable forward contracts jumped by 4.1 per cent to a record N329 per dollar, while contracts maturing in a year rose by 3.3 per cent to N363 per dollar, the highest level on a closing basis.
One-week historical volatility increased to 27 per cent, compared to an average of 8.6 per cent over the past year, data compiled by Bloomberg showed.
The naira weakened by 3.5 per cent to a record N294.5 against the dollar in the spot market, having swung between 280.22 and 294.84.
A currency trader at INTL FCStone Limited, Mr. David Willacy, said little trading took place.
On Friday, the CBN ended a rule capping the difference, or spread, between bids and offers in the foreign-exchange interbank market at 50 kobo, an analyst at Ecobank Transnational Incorporated, Mr. Kunle Ezun, said.
“That’s why you are seeing that volatility,” Ezun said.
He added, “The spread used to make prices move within a defined range, which is not good. The expectation is that central bank will allow the market to trade freely by removing the spread and letting liquidity determine the rate.”