Naira Rates Recalibrate as Pressure Hits ‘Dark Economy’
The naira exchange rate in the black market, Nigeria’s untamed dark economy, appreciated strongly over a week to N1515 per US dollar. Speculative concerns eased after unrelenting efforts of the Central Bank of Nigeria (CBN) to achieve an accurate exchange rate for the naira.
But some Nigerians have been hoarding the US dollar in anticipation of obtaining higher spread in the black market – activities that the authority has not been able to curb. “Transparency is key in the FX market –when Nigeria gets it correctly, every dust would settle around the forces of demand and supply.
“This will help policymakers to know what is actually wrong with the economic structure,” economists said at MarketForces Africa’s forum at the weekend. In the just concluded week, the local currency gained weight across forex markets due to what most of the analysts called improved transparency, efficiency, and liquidity.
The naira saw light for the first time in a long while after the Central Bank of Nigeria automated trading system that significantly reduced potential or possible sharp practices from any authorised dealer banks.
This, coupled with sizeable liquidity, has given the local currency a positive outlook—as a number of analysts predicted, except there is a shock: the naira is going to bounce back to the lowest level imaginable in 2024.
Nigerians hoarding US dollars have started offloaded dollars in response to the Central Bank of Nigeria’s (CBN) new foreign exchange (FX) framework. In the official window, the naira saw an uninterrupted appreciation spanning five days in the autonomous FX market.
The exchange rate improved by N137 to settle at N1535, according to data from the FMDQ platform. In the parallel market, the naira also gained N213 to close N1515. Recall that parallel market rate peaked at N1780 in November due to higher demand for invisible imports payment.
At the current exchange rates, the spread or the gap between the two markets narrowed to 1.32%, a significant development in FX market versus 5.89% in the previous week. Analysts said the recovery is largely attributed to the introduction of the Bloomberg BMatch; Electronic Foreign Exchange Matching System last week.
Speculative activities on the naira is expected to reduce further this week, analysts said, noting that spread has thinned and the CBN is unrelenting in its price discovery drive. At the last look, the nation’s gross external reserves improved to $40.32 billion.
The amount appears to be sufficient as a buffer for the monetary authority to aid price discovery agenda, analysts said. FX trading automation and liquidity which is further supported by growing external reserves, have become disincentives to hoard foreign currency in Nigeria. #Naira Rates Recalibrate as Pressure Hits ‘Dark Economy’
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