The exchange rate gap between the official and parallel segments of the foreign exchange market narrowed by more than a half in one week amid a decline in the demand for dollars.
The exchange rate spread narrowed to N226.72 per dollar on Friday from N494 a week earlier.
The naira strengthened against the dollar on the black market to 1,020/$, compared to a low of 1,310/$ the previous week. It however depreciated on the official market to N793.28/$ on Thursday as against N786.02/$ the preceding day.
Ibukun Omoyeni, Sub-Saharan Africa economist at Lagos-based Vetiva, said in an October 31 note: “Following the removal of subsidies, the central bank allowed the exchange rate to float in the official market. While the subsequent depreciation in the official market led to a short-lived parity with the parallel market, the FX gap reemerged due to the absence of buffers/supply amid the backlog of FX demand from foreign portfolio investors, airlines, and importers.
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“While the framework for a unified FX regime has been put in place by redrafting Bureau de Change operators into the Nigerian Foreign Exchange Market and removing FX restrictions on 43 items, the absence of FX supply amid a low net reserve stock has caused the naira to fall freely in both the official and parallel markets. This is especially due to forward obligations ($6 billion) that were due since February 2023.”
It was gathered that speculators were selling the dollars they had been hoarding, following news about government plans to increase liquidity in the market.
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Wale Edun, the finance minister, said on October 23 that the country was expecting as much as $10 billion in new foreign currency inflows in the next few weeks to ease acute dollar shortages in the foreign exchange market. Also, the Central Bank of Nigeria last week started clearing FX backlog and delivered on over 75 percent to 80 percent of outstanding matured FX forwards in some specific banks.
“We believe that Nigeria’s US dollar and naira-denominated markets are largely decoupled at the moment, and we also question whether such an inflow is good for Eurobonds,” Coronation Research analysts said in their October 30 note.
On the impact of the expected $10 billion FX inflow, they said: “The most important market is, of course, the foreign exchange market. Here it is noticeable that the parallel market did not appreciate very much after the announcement (which was at the Nigeria Economic Summit).
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