Amid the current scarcity of forex (FX) bedeviling the country, there are strong indications that the dollar might hit N700/$1 before the week runs out.
Investigations done by Daily Sun show that due to the scarcity, Nigerian banks as well as traders have begun rationing the available stock, leading to volatility in the market. As at Monday (1pm), sources told Daily Sun that the selling rate at the black market reached N650/$1 while its buying rate stood at N655/$1. The dollar had depreciated by 0.3 per cent, closing at N665/$1 at the parallel market while the naira appreciated by 0.1 per cent to remain in the wilderness at N430/$1. At the I&E window, total turnover (as of 21 July 2022) increased by 278.7 percent WTD to $803.75 million, with trades consummated within the N410.00 – 444.00/$ band.
Also, in the forwards market, the rate was flat at the 1-month (N427.40/$) contract, but depreciated at the 3-month (-0.1 per cent to N435.50/$) contract. The scarcity has been blamed mostly on a fragmented market that has enabled a disproportionate pricing regime on the black market.
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The Central Bank of Nigeria (CBN) had a year ago banned the sale of FX to BDCs citing the illegal sale as the reason behind its decision. At that time, the exchange rate was about N501/$1 with $33 billion in the country’s FX reserves.
Furthermore, with the decline in the amount traded weeks ago (July 15,2022), the CBN, in a bid to reverse the trend, pumped more forex into the market (July 22,2022). However, that action led to a downward trajectory in the nation’s external reserves at the end of June 2022.
Traders who spoke to Daily Sun via a telephone chat anonymously, expressed frustration at losing huge amounts of money while blaming the limited FX on the CBN. “We used to get the official price from the CBN in which we then mark up the price and sell. This was like a reference point to us. But when they stopped selling dollars to us, everyone is doing what they wish as they just source it and then hike the price.
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Speaking on the development, the President, Association of Bureau de Change Operators (ABCON), Aminu Gwadebe, attributed the unstable rates to the disorganized market, high demand and global uncertainty.
“If one wants to buy or sell a dollar in Lagos, the rates will be different in Port Harcourt or Abuja as it is not as competitive in terms of pricing in Lagos. The environment also plays a huge part in this situation and this is what I call a disorganized market system”.
Also speaking on the development a renowned economist, Professor Pat Utomi, expressed displeasure over the uncertainties of the forex market as a result of the unstable policies of the CBN.
According to him, the CBN is used to impromptu policies and regulations that erode investors’ confidence in the forex market and the economy.
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“Sometimes, the authorities act in panic when they see that our reserves are running low, yet, the policies that we are implementing are inevitably going to lead to those conditions anyway. The controls over the market typically affect the inflow of forex, but committing is better than poor regulation. If you commit to a regime of control there will be more stability, people (investors/Nigerians in Diaspora) can trust the market, they will not be afraid of uncertainties.
“The monetary authorities haven’t been consistent with their policies; they can wake up any day and change the laws,” he said.
For their part, analysts at Nairametrics, noted that since the outbreak of COVID-19, inflows across capital importation, loans, diaspora remittances, exports, income from investments and other autonomous sources have been dwindling.