The persistent depreciation in the value of the Naira against the US dollar on the black market has further escalated the level of uncertainties among traders, as operators find it hard to determine what the actual exchange rate is.
Exchange rate volatility in Nigeria’s black market where the currency is trading unofficially often creates arbitrage opportunities for some while creating losses for those who lose grasp of the optimum price.
Naira has fallen by over N190/$1 year to date from an average of N565/$1 recorded as of 31st December 2021, currently trading as high as N760/$1 depending on the location and who you are buying from.
Meanwhile, it is becoming hard for market traders to ascertain the current rates and have to rely on calling each other to get updated rates.
Several calls placed to black market traders on Monday morning, returned varying rates, as some of the traders relied on the exchange rates of their colleagues in other areas. According to Mallam Audu, he currently sells dollars for a minimum of N755/$1 and would buy at the rate of N747/$1.
Confusion Among Black Market Traders As Exchange Rate Goes Haywire
Meanwhile, Mr. Usman who called his colleague to confirm told Nairametrics he is selling for a minimum of N758/$1, while he buys at an average of N750/$1 depending on the volume of FX being traded. Despite this disparity, a common issue ravaging the market is the scarcity of the greenback.
The black-market exchange rate has been volatile and disparate in pricing since the central bank discontinued the sale of forex to Bureau De Change operators in the country in July 2021.
The apex bank blamed the alleged speculative activities of the BDC operators for the ban at the time. A move, which has significantly reduced the amount of FX available to trade in the parallel market.
The sustained FX scarcity in the country has seen the naira lost ground against the US dollar despite interest rate hike by the Central Bank of Nigeria.
This is coupled with increased demands, as many seek to hedge against the rising inflation rate by saving in foreign currency.
Nigeria’s inflation rate is currently trailing a 17-year high at 20.77%, the highest since 2005 largely due to the depreciating currency and the global energy crisis.
This prompted the CBN to raise the benchmark interest rate for the third time in a row to 15.5% in a bid to tame to the rising cost of goods and services.
The official exchange rate, which is more regulated by the apex bank has also depreciated against the US dollar year to date, closing at N441.67/$1 on Friday last week, compared to an average of N416/$1 recorded in the previous year.
This is a result of the shortage of FX supply in the market, considering dwindling inflows, and lack of remittances from the NNPC amongst other factors that have left the CBN short on FX to intervene in the market.
The nation’s external reserve has also lost about $2.8 billion between January and to date, as the Central Bank continues to intervene in the Investors and Exporters window.
As of Thursday, 20th October 2022, the reserve level was at $37.68 billion falling further below the $40 billion threshold.