The Central Bank of Nigeria (CBN) on Thursday issued a letter to all Deposit Money Banks (DMBs), International Money Transfer Operators (IMTOs), and the general public, announcing the inclusion of the Naira as a payout option for diaspora remittances.
The announcement was made on the back of an initial circular dated November 30, 2020, in which the CBN mandated the IMTOs to pay recipients FX in cash or through their domiciliary accounts.
The recent announcement will expand the range of payout options available to recipients of diaspora remittances through CBN-approved IMTOs.
Recipients will now have the option to receive their remittances in Naira, in addition to the existing options of USD and e-Naira.
The CBN also mandated that IMTOs use the I&E window rate as the anchor rate on the day of the transaction when paying out the funds.
We believe this is aimed at ensuring that the dollars remain within the banking system as recipients of remittances will have no reason to exchange at the parallel market if they can get similar rates from the IMTOs.
The Naira has been depreciating since the CBN announced the unification of the exchange rates at the various windows closing at N746.28/US$ at the I&E window and at N810/US$ at the
the parallel market yesterday.
The demand for FX still significantly exceeds its supply and this means the currency will likely continue to depreciate except structures are put in place to increase the supply of FX.
The opening of the Dangote refinery may aid to support the exchange rate as both the official window and the parallel market rate converge but we are sceptical that production will commence before the end of the year.
We have revised our end-of-year forecast for the Naira from N510/US$ previously to N785.77/US$.
In the immediate term, we believe that there will still be a moderate disparity between the FX rates at the parallel market and the I&E window as the former continues to have a higher demand for FX given that the 41 items remain excluded from the official windows and sourcing FX from the parallel market appears easier.
