Dollar Demand Drops at Black Market as CBN's Policy Comes into Force– Traders

Traders said Thursday that demand for dollars at the black market has dropped after Nigeria’s bold move yesterday to float the naira.

The drop in demand in the black market comes as no surprise as several businesses that had turned to that market after being starved of dollars at the official market will now return to the official market for transactions.

That’s after the CBN directed commercial banks to start selling forex freely at market-determined rates in a breakaway from years of fixing the price. The naira fell to as low as N755/$ on the official window before closing at N664/$.

The move is expected to deepen liquidity in the official market and reduce transactions in the black market.

The lower demand in the black market hasn’t started reflecting significantly on prices with traders quoting the dollar at N760 Thursday.

With the current exchange rate, the gap between the official and parallel market has dropped to 96 from 301 previously.

Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said rate unification does not imply that rates will be exactly the same in all segments of the market.

According to him, the objective is to ensure that the differentials are very minimal, possibly between 5-10 percent.

“it is important to reiterate that this is not a devaluation policy, it is a normalization of the foreign exchange policy regime and an adjustment of rate to reflect the fundamentals of demand and supply. It would be dynamic; and the naira will appreciate or depreciate depending on the fundamentals,” Yusuf said.

“In the short term, we expect a depreciation of the currency in the official window because of the huge demand backlog. But as the market conditions normalizes and moves towards equilibrium, the rate would moderate.

“We also expect the new policy regime to boost inflows and strengthen the supply side amidst elevated investors’ confidence. The component of forex demand driven by arbitrage, rent seekers, speculators and other economic parasites would also fizzle out, thus restoring stability to the forex market,” he said.

June 15, 2023