The naira is trading higher on the black market for the first time since 2015, exactly one week after the Central Bank of Nigeria (CBN) shut down the foreign currency (FX) market to allow gradual rate harmonisation around the Investors’ and Exporters’ (I&E) window.
In the history of the alternative FX window, this would indicate that end users are receiving dollars at a discount at the black market rate.
On Monday, the I&E window closed at N770.38/$, losing more than 9% against the dollar in a single day. The local currency had started the trading session at N705.5/$, but it plummeted in spot trade to N799/$ before beginning to appreciate and ending at N770.38/$.
The local currency’s lowest intraday rate, N461/$, made the session one of the most turbulent in recent memory.
De-pegging of the local currency may herald the start of a more unpredictable foreign exchange rate, according to The Guardian.
The dollar still sells at an average rate of N750 per dollar at the street market, despite having breached the psychological barrier of N750 and trading close to the N800/$ range.
The majority of Lagos dealers were quoting N745/$ as a purchase offer and N755/$ as a selling price as of yesterday, bringing the average rate to N750/$, which is around 2.6% less than the official market rate on the first trading day of the week.
Despite yesterday’s N13.77 increase against the US dollar, the naira’s closing rate of N756/$ was still somewhat higher than the going rates on the black market.
When the naira was trading at roughly N195/$ on both the official and illicit markets in 2015, the arbitrage was called off.
Last year, the arbitrage increased to as much as 100%, which sparked worries about the possibility of an increase in round tripping, the effect on capital influx, and official manipulation.
With the development, exporters may now find the legitimate opportunity to sell their remitted FX more appealing than the black market. Companies and individuals who save foreign currency overseas might be encouraged to do so through the official window, which would eventually result in a stronger naira, according to analysts.
The elimination of market arbitrage and the increase in activity at the official window may have begun to have an impact on alternative market volume. According to reliable sources, the majority of street vendors have ran out of cash since the supply has dried up.
Over the weekend, a trader claimed that there was “absolutely no supply” and that trading was primarily one-way.
“I don’t have sell quotes because there is no dollar to sell. We can only have rates for selling if we have some notes to sell,” a dealer sad.
MEANWHILE, Dr. Kingsley Obiora, the CBN’s deputy governor, was quoted by Bloomberg as noting that the latest shift is not the same as a free float as reported by most media outlets.
In an interview with a foreign media outlet in Morocco, Obiora, who is in charge of the Economic Policy Directorate, reportedly stated that no government has a “completely free float” as its strategy to managing foreign exchange.
With the currency trading over N750/$ at the official market window, he continued, it is still too early to say that the value of the naira has bottomed out.
Obiora warned Nigerians to anticipate other policy adjustments in the coming weeks, arguing that the floating is just the first in a line of market-reforming measures.
