The Central Bank of Nigeria’s unification of the official and parallel foreign exchange market rates is proving unsuccessful, as shown by the market spectrum.
The official rate and the black market are now separated by more than N200, which has sparked concerns about a possible disconnect between the Central Bank’s controlled official market and the black market, where most retail transactions occur.
The fact that several quotes are currently above the N1,700 level against the safe-haven currency, the dollar, suggests that last week’s gains might have been a “dead cat bounce” in the unofficial market.
The naira-to-dollar exchange rate on the official market closed on Wednesday at about N1,545/$, down 1.31 percent from N1,525/$ the day before. Bureau de Change operators reported that the naira was worth N1,750/$ on the black market on Wednesday, down from N1,625/$ on Tuesday.
BDC operators blame the continuous depreciation on speculators who are still holding firm despite the Central Bank’s efforts to strengthen the trading platform.
Fundamentals also show strong demand for dollars from people traveling for business, education, and hedging against the naira, which contributed to the naira’s sharp decline in value on the black market.
The growing gap between official and black-market rates indicates a misalignment between the CBN-controlled official market and the black market, where most retail transactions occur. P2P exchanges have set the rate at N1,725 per dollar, despite some IMTOs quoting as much as N1,745 against the greenback.
Platforms for trading stocks, such as Trove and Bamboo, reported N1,736 and N1,730, respectively. This is the first time the naira has experienced depreciation on the black market since the introduction of the Electronic Foreign Exchange Matching System (EFEMS) by the Nigerian apex bank to facilitate transparent foreign exchange transactions.
This comes amid the recent increase in the nation’s external reserves and an uptick in crude oil production.
U.S. Dollar Index Posts Strong Gains Amid Inflation Data Release
The dollar posted strong gains during the mid-week trading session following the release of the American inflation index on Wednesday, which revealed a fresh acceleration in consumer prices in the United States in November, as anticipated by analysts.
The US dollar, against a basket of six other currencies, gained 5 basis points on Wednesday.
The U.S. Department of Labor released its CPI index on Wednesday, showing that consumer prices in the U.S. increased 2.7 percent year-over-year in November after rising 2.6 percent in October.
The market’s overall view projects that Donald Trump’s fiscal policies and proposed tariffs will result in less easing from the Fed next year and a stronger U.S. economy.
The Fed is expected to keep interest rates higher than those of the Bank of England or the European Central Bank amid monetary policy divergences. Investors and analysts anticipate that the ECB, which meets on Thursday, will lower its main interest rate by 0.25 percentage points, given the weak growth in the eurozone.
