The naira’s official exchange rate fell below its street value, signaling the Nigerian currency may be closer to its fair market level after plunging to a record against the dollar this week.
The naira closed at 1,482.57 per dollar in the so-called NAFEM window on Tuesday, according to data published by FMDQ, which calculates the exchange rate. The currency traded at 1,475 on the parallel market on the day, according to Abubakar Mohammed, chief executive for Forward Marketing Bureau de Change Ltd., which compiles the data.
The plunge came after the Central Bank of Nigeria warned traders on Monday against manipulating the exchange rate by under-reporting transaction prices. FMDQ revised the methodology it uses to calculate the official rate, resulting in the devaluation of more than 30% on Tuesday on the official trading platform.
Nigeria now needs more foreign-exchange inflows through the official market to maintain the convergence between the official and black-market values, according to Ayodeji Dawodu, director of fixed income for Central and Eastern Europe, Middle East and Africa at Banctrust Investment Bank Ltd. in London. The parallel market developed because of shortage of dollars through official channels.
“For the parallel and official rate, I think it’s competition at this point,” Dawodu said. “If you don’t see significant forex inflows in the near term at the official market, the parallel market rate is going to keep jumping.”
The naira has remained volatile since foreign exchange reforms in June resulted in a devaluation of about 30%. The central bank has blamed inadequate dollar liquidity for exacerbating price swings and promised to boost supply to clear the backlog of foreign-exchange demand estimated to be about $5 billion.