Nigeria’s currency on Wednesday closed at N506 per dollar, which was 0.39 percent stronger than N508, closed on Tuesday at the parallel market, also known as black market.
Naira fell sharply to N525 to the dollar last week after the Central Bank of Nigeria (CBN) announced its plan to discontinue the sale of dollars to the Bureau De Change (BDC) operators due to foreign exchange arbitrage.
The local currency started firming up on Thursday, the following day, after the Nigerian banks chief executives unanimously agreed to support and meet legitimate demand for dollar by the end users.
At the Investors and Exporters (I&E) forex window, Naira remained unchanged at N411.50 per dollar for the second day, according to data from the FMDQ.
Currency traders who participated at the trading session on Wednesday maintained bids at between N400.00k and N413.00k per dollar.
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Foreign exchange daily market turnover increased by 4.15 percent to $119.95 million on Wednesday from $115.17 million recorded on Tuesday at the official window.
The Central Bank of Nigeria on 27 July discontinued FX supply to the BDCs but asked banks to take over the duty of supplying FX to the wider public. The CBN Governor announced the decision during the MPC meeting, relating the action of the BDCs mishandling FX as putting the country’s financial system at risk as they looked for abnormal returns.
“At face value, the decision chops off nearly USD450mn/month of FX supply (about 30% of total FX supply to the market). We expect the decision to put further pressure on the Naira in the parallel market as it did in two similar incidents back in 2016 and 2020,” analysts at EFG Hermes, Investment Banking and the leading financial partner in Frontier Emerging Markets (FEM), said.
“While banks should supply dollars to the market, we think logistically (replacing more than 5000 branches of BDCs) and liquidity (system lacks significant FX liquidity) challenges are likely to feed into a weaker Naira. Moreover, the banking system is required to not provide FX for a range of goods (thanks to the CBN’s list of import controls), hence this would put further pressure on the Naira,” the analysts said.