Gap narrows in the parallel and official markets

The gap between the black market and the official rates for the naira which has been widened over the past eight months has narrowed down significantly.

Bureau de change operators in Lagos revealed that the Naira has appreciated in value to the dollar even on the parallel market, though some could not fathom the reasons behind the "sudden appreciation."

Naira appreciates against the dollar

According to Suleman Gali, a bureau de change operator in Marina, "a dollar now exchanges for ₦156 at the black market. Nobody can explain what has happened but let us give them time. Let us see whether they are lying. Time is the judge."

Mr. Gali does not often buy his Forex from the banks, but boys under his bureau do. According to him: "I get my Forex from people who want to buy and sell, not from the banks. I don't like the long processes and dubious ways some of them have."

However, the bureau de change operators are still very sceptical about the fate of the naira. According to Mr. Gali: "If he (The CBN governor, Sanusi Lamido) is honest, it will come down. This one is dropping down now but we don't know what will happen again. You know Nigerians, you can't trust anybody."

"If the Naira comes down, businesses will establish. Look at the difference between ₦182 and ₦153. The problem is that all goods are still up and they will still tell you that it is the rise in dollar. Now the dollar is down and food prices are still high," he said.

Autonomous sources are back

An analyst, who is also a bank official explained that there have been a large number of dollar sales by autonomous sources to the bureau de change operators which have in turn, forced the prices down. According to him, "autonomous sources are back into the market. Domestic companies who export and need to sell and buy currencies are probably getting more relaxed with the Forex market.

"Also there is also a promise by the CBN of a return to a liberalised market. When you have a market that functions properly, you begin to approach a balance, stability and a possible equilibrium."

The Nigerian naira has remained stable at ₦146 to the U.S dollar at official rates this week but at the interbank, the local currency slipped to ₦148.70 naira per dollar from ₦148.50.

The regulator sold $70.06 million at its twice-weekly Forex auction last Wednesday, against $72.98 million demanded, bringing total sales last week to $151.34 million against cumulative demand of $177.12 million.

Major oil companies, including NNPC, sold over 200 million dollars to selected banks and autonomous sources last week, boosting dollar liquidity in the market.

Naira's historic decline

The Naira, which had recorded relative stability at ₦118:$1 over the last three years until October 2008, depreciated further from November 26, when the Central Bank began limiting the supply of dollars to defend its foreign currency reserves, following a drop in the price of oil, which accounts for 90% of Nigeria's export revenue.

The regulator lost $6 billion between December 2008 and January 2009, while trying to defend the value of the Naira as Nigeria's foreign reserves stood at $52billion as at January 06, 2009.

To put an end to the activities of currency speculators who were said to have besieged the market, leading to a decline in the value of the Naira, the Central Bank reverted to the Retail Dutch Auction System (RDAS) from the Wholesale Dutch Auction System (WDAS) on January 19, 2009.

The central bank replaced its daily auctions with a bi-weekly trading on May 25, 2009, after removing Forex market controls imposed in mid-March, to conserve Nigeria's falling foreign reserves and stem a sharp decline in the local currency.

The easing of the Forex restrictions allows retails banks to buy dollars from oil firms and government agencies and then sell them on the interbank market.

Nigerian lenders are still forbidden from selling dollars purchased from the Central Bank on the interbank market.