Naira Gains at Parallel Market, Trades at 1050/$1

The naira gained some ground on Tuesday at the parallel market, where it traded at 1050/$1, while peer-to-peer traders quoted around 1062.10/$1.

 The parallel market rates are now close to the official intra-day high rates, suggesting a convergence of the FX markets.

However, the naira suffered a massive depreciation at the official market on Tuesday, falling to 869.91/$1, a 6.99% decline from the previous closing rate of 809.02/$1 on Monday.

This is the second time the naira has dropped since the Central Bank of Nigeria (CBN) started clearing some of its foreign exchange (FX) backlog last week.

The official market recorded a wide spread of 400/$1 between the intraday high of 1100/$1 and the intraday low of 700/$1, indicating high volatility and uncertainty in the market. The forex turnover at the end of the trading was $70.92 million, a 19.08% decrease from the previous day.

The CBN had announced last week that it had begun to clear the backlog of FX forward contracts, which had accumulated due to the chronic dollar shortages in the country.

The dollar scarcity was caused by the exit of foreign investors from local assets amid low oil prices. The CBN had struggled to meet the demand for dollars from foreign investors seeking to repatriate funds or airlines seeking to remit money from ticket sales abroad.

The CBN’s payments followed the announcement by the Finance Minister, Wale Edun, that Nigeria was expecting $10 billion of inflows to improve FX market liquidity. The clearing of the FX backlog is expected to ease the pressure on the naira, boost the confidence of the business community, and stimulate the economy.

The Manufacturers Association of Nigeria (MAN) and the Lagos Chamber of Commerce and Industry (LCCI) welcomed the CBN’s move, saying it would benefit the manufacturing sector and the traditional market. They said many manufacturers had not been able to procure their raw materials and machinery due to the FX crisis.

They also said the clearing of the FX backlog would restore the confidence of portfolio investors and foreign direct investors, as well as international airlines. They urged the CBN to sustain the FX market interventions and ensure transparency and stability in the FX market.

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