Naira Tumbles as 'Unclean Money' Floods Black Market
FX

Naira Tumbles as ‘Unclean Money’ Floods Black Market

The forces of supply and supply that determine spot rates across the foreign exchange markets were altered by a visible hand after the Central Bank of Nigeria (CBN) announced a plan to redesign N200, N500 and N1,000 notes.

In the just concluded week, the Nigerian naira depreciated as official and unofficial rates plunged to a record low, according to trading data from the FMDQ Exchange platform and Bureau de Change naira freely trades.

In the investors’ and exporters’ foreign exchange window, the exchange rate plunged to N445.50 per United States dollar, a decline of 75 kobo from the previous week’s close as manufacturers, and other importers’ demand exceed dollar inflows.

MarketForces Africa currencies tracking activities indicates that some economic saboteurs pump higher numbers of Nigerian naira that cannot pass through regulated financial services via unregulated currencies traders, thus worsening black market FX rates.

While the Central Bank said in a report that dollar inflow into the country improved in the first half of the year, Africa’s largest economy external reserves printed lower again at $37.365 billion despite an increase in Brent crude oil price.

In the just concluded week, Brent crude oil price rose slightly by 3.1% to $97.56 per barrel while analysts noted that external reserves dropped by 0.4%. In the parallel market, the exchange rate worsened to N880 per United States dollar.

Some black market traders quoted as high as N900 in Lagos, according to channel checks conducted by MarketForces Africa. In Abuja, the highest price quote by black market traders was N880.

In Ibadan, a number of Bureau de change were actually short of dollar liquidity and yet they quoted a ‘fairy tale exchange rate”. A similar pattern was spotted in Lagos where some currencies trader quote rates randomly. 

With the worsening black market rate, analysts stated that the disparity between the Nigerian Autonomous Foreign Exchange Fixing (NAFEX) and the parallel market rate has further widened. READ: Treasury Yield Tumbles as Naira Steady Against Dollar

Hoarded money has been injected into the economy via the black market following CBN’s deadline for exchanging old notes with new prints. At the best spot price in the parallel market, rates closed at ₦885.00, depreciating ₦125.00 in a week at a random price named by street traders. 

Meanwhile, the volume of dollars transacted at the Investors and Exporters FX window inched higher by 5.3 to $389.0 million from $369.3m in the previous week, according to analysts’ notes.

At the FMDQ Securities Exchange FX Futures Contract market the total value of open contracts of the Naira settled at $4.2 billion, up $50.0 million or 1.2% from $4.1 billion in the prior week, according to Afrinvest Limited.

The increase was supported by the addition of the APR 2024 and OCT 2024 instruments, market analysts added.  The JUN 2024 instrument with a contract price of ₦508.00 received the most buying interest in the week with an additional subscription of $10.0 million which took the total value to $10.5 million.

On the other hand, the JAN 2024 instrument with a contract price of ₦489.80 was the least subscribed, with an additional subscription of $20.0 million for a total value of $45.0 billion, market analysts stated

At the Interbank foreign exchange forward Contracts market, the spot exchange rate cleared upward at N445 from N430 last week. Exchange rate in the Naira FX forward contracts markets traded in a mixed bag across all tenor contracts.

Consequently, the 1-month, 3 month and 6-month tenor contracts gained strength marginally by 0.09%, 0.08% and 0.01% week on week to close at N449.03, N458.39 and N476.49 in that order, Cowry Asset said in a market report

Meanwhile, the 2 months and 12 months Naira forward contracts bowing to pressure against the greenback by 0.11% and 0.29% in that order to close the week at N453.30 and N502.47 respectively.

Projecting into the new week, Afrinvest analysts are expecting pressure to persist on the exchange rate across the FX market due to speculative activities. “We see the current pressure on the local currency continuing across the board as speculative activities take centre stage.

“This demand pressure is expected to bring about an elevation in the FX backlog further above the current levels as the demand level continues to outweigh the supply levels as we head into the festive season and election campaign activities throttle in full force”, Cowry Asset said in its market report. # Naira Tumbles as ‘Unclean Money’ Floods Black Market

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