• Thursday, June 13, 2024
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BusinessDay

Nigeria’s central bank is losing a battle to close naira-rate gap

Dollar nears N1,500 as scarcity hits black market

Nigeria’s official currency exchange rate is once again widening a gap with the parallel-market rate, shrugging off a brief convergence spurred by central bank actions.

The naira closed at 743 per dollar on the platform accepted as the official rate by the central bank on Tuesday, according to data compiled by Bloomberg.

That’s about 11% stronger than the 834 a dollar it fetched on the parallel market, according to Abubakar Mohammed, chief executive of Forward Marketing Bureau de Change Ltd. in Lagos.

Africa’s biggest crude producer eased foreign exchange controls in mid-June as it sought to simplify its exchange-rate regime.

As a result, the naira weakened as much as 40% in the investors and exporters window, briefly aligning with the black-market rate.

The forex reforms were a key demand of investors and multilateral institutions including the World Bank.

But the removal of the currency peg has so far failed to eliminate a backlog of dollar demand, forcing businesses to turn to unofficial sources.

That’s undermining the central bank’s effort to close the gap between the official and black-market rates.

“Customers that have gone to the investors and exporters window and are unable to source forex are coming to the parallel market,” Mohammed said. But this cannot be independently confirmed.

Read also: Naira confab to focus on stable forex market, others

The central bank had initially said that it would allow the currency to trade freely until it finds its new market-related level.

But traders say its been intervening in the market to prevent sharper losses for the currency, amid concerns a weaker exchange rate would fuel inflation.

The concerns rose after petrol price surged Tuesday largely as a result of the depreciation of the currency and labour is threatening a campaign against the government.