The naira on Thursday exchanged flat with the US dollar at the parallel market, commonly referred to as black market.
The dollar, which was quoted at between N1,250 and N1,260 on Wednesday, remained the same on Thursday at the black market.
The current exchange rate on the black market is stronger than the rate on the official market.
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The local currency strengthened by 1.25 percent as the dollar was quoted at N1,262.85 on Wednesday, stronger than N1,278.58 quoted on Tuesday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to the data released by FMDQ Securities Exchange.
This has lowered the exchange rate gap between the official and the black market rate to N18 per dollar.
Some currency dealers said naira was stronger at the parallel market due to reduced speculation as dollar hoarders are offloading the greenback, following forex policy measures of the Central Bank of Nigeria (CBN).
“People are bringing out dollars because they do not want to lose so much money because the dollar is coming down and there’s low demand in the market, a trader in Lagos told BusinessDay on Thursday.
As part of measures to control inflation and stabilise the naira, the CBN last month raised its benchmark interest rate, known as the Monetary Policy Rate (MPR) by 200 basis points to 24.75 percent from 22.75 percent in February 2024.
On June 14, 2023, the central bank enacted several reforms, including the abolishment of market segmentation, consolidation of all segments into the Investors & Exporters window (now called the Nigerian Autonomous Foreign Exchange), and the reintroduction of the willing buyer, willing seller framework.
In August 2023, the CBN resumed forex sales to Bureau de Change (BDCs) but implemented a restriction on the buying and selling spread by BDCs to +/-2.5 percent of the weighted average of transactions executed the previous day on the I&E window.
In January 2024, the apex bank imposed a limit on the Net Open Position (NOP) of banks in Nigeria, setting it at a maximum of 20 percent short or zero percent long holding of foreign currency assets and liabilities. Additionally, the CBN directed International Money Transfer Operators (IMTOs) to quote an exchange rate for Naira payout to beneficiaries based on the prevailing market price.
In February 2024, the CBN removed any caps on the spread on interbank Forex transactions and lifted restrictions on the sales of interbank proceeds. Furthermore, the CBN restricted the payout of Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) to electronic channels only.
Read also: Naira strengthens to N1,250 at parallel market
According to FSDH Research, the implementation of these measures has contributed to the reduction of volatility in the Naira in the FX markets.
By March 2024, the volatility of the naira had further decreased following additional reforms by the CBN aimed at enhancing transparency and inflows into the FX market. On March 28, the NAFEM closing rate stood at N1309.4, reflecting a significant appreciation from its peak of N1,650 on February 26, 2024.
Analysts at FSDH expressed optimism, stating, “We believe that the recent FX reforms, coupled with high interest rates and improved oil production, will bring stability to the FX market.”
