The gap between the official and parallel market exchange rates of the naira has continued to widen despite several interventions by the Central Bank of Nigeria (CBN).
While the naira traded against the dollar at N844.85 at the official market, at the parallel market where forex is sold unofficially, it goes for N1240/$1, leaving the gap between the two markets at N400.15.
The widening gap between the naira’s official exchange rate and the parallel market rate is the widest seen since the currency’s unification, largely driven by an insatiable demand for the US dollar that surpasses the available supply.
CBN Governor Olayemi Cardoso, had earlier stated that he will allow market forces to set exchange rates while establishing uniform, transparent, and unambiguous regulations controlling market activity.
Experts are worried that the principle of willing buyer-seller foreign exchange trading could have negative short-term effects on the Nigerian economy, as sellers seek the highest bidder for their US dollar, potentially undermining the objectives of the CBN.
Stephen Iloba, an economist, said the development has defeated the willing buyer, willing seller approach as there are only willing buyers and not willing sellers.
He said, “What we are seeing is that the dollar has been going up. It means there are fewer willing sellers and this will continue until there is a drop in demand or there is enough supply pumped into the market.”
The former President and Chairman governing council of the Chartered Institute of Stockbrokers (CIS) and the Managing Director of Arthur Steven Asset Management Limited, Mr. Olatunde Amolegbe argued that for the exchange rate to be stable, market and participants confidence is key.
Managing Director/CEO, of Financial Derivatives Company Limited, Bismarck Rewane had said in a report that the naira is expected to remain volatile on lingering forex supply concerns.
“The dollar dearth means speculative buying is likely to continue, with an increasing number of market participants taking long positions on the dollar while shorting the naira.
The CBN in June, 2023 allowed the naira to float in a bid to unify the multiple exchange rates and to lure foreign investment to shore up liquidity in an economy struggling with dollar shortage.