The gap between the two rates has been widening since the CBN introduced the Naira (naira) as a legal tender in 2009.
The Naira’s Value in the Official and Parallel Markets
The naira’s value in the official and parallel markets has been a subject of interest for many Nigerians. The official exchange rate, which is the rate at which the CBN sells the naira to banks, has been steadily increasing since 2009. However, the parallel market rate, which is the rate at which the naira is exchanged on the black market, has been fluctuating wildly.
Key Statistics
The Impact of the Gap on Nigerians
The widening gap between the official and parallel market rates has significant implications for Nigerians. For instance, the parallel market rate is often higher than the official rate, which means that individuals and businesses that need to exchange money for foreign currency may have to pay a premium. The premium can be as high as 50% of the official rate. This can be a significant burden for individuals and businesses, especially those that rely heavily on imports.*
The CBN’s Response
The CBN has been working to narrow the gap between the official and parallel market rates. However, the process has been slow, and the gap continues to widen. The CBN has introduced measures to increase the supply of naira in the market.
CBN sells foreign exchange reserves to boost forex liquidity in Nigeria.
The Central Bank of Nigeria (CBN) has sold a significant portion of its foreign exchange reserves to authorized dealer banks in the range of N1640 and N1650. This move is aimed at addressing the current forex liquidity shortage in the country.
Understanding the Forex Liquidity Shortage
The forex liquidity shortage has been a persistent issue in Nigeria, affecting various sectors of the economy. The shortage has led to a decline in the exchange rate, making it difficult for businesses and individuals to access foreign currency. The situation has been exacerbated by the COVID-19 pandemic, which has disrupted global trade and supply chains. Key factors contributing to the forex liquidity shortage: + Reduced foreign investment + Decreased exports + Increased import demand + COVID-19 pandemic
The CBN’s Response
The CBN has taken several measures to address the forex liquidity shortage. The recent sale of foreign exchange reserves is one of the key initiatives aimed at increasing liquidity in the market. The sale was conducted in the range of N1640 and N1650, with the aim of providing a stable source of foreign currency for authorized dealer banks. Key features of the CBN’s response: + Sale of foreign exchange reserves + Range of N1640 and N1650 + Aim of increasing liquidity in the market
Impact of the CBN’s Response
The CBN’s response to the forex liquidity shortage has had a significant impact on the market. The sale of foreign exchange reserves has provided a much-needed injection of liquidity, helping to stabilize the exchange rate.
The Rise of Foreign Portfolio Investors
Foreign portfolio investors have been increasingly active in the Nigerian autonomous forex market, injecting significant capital into the system. This surge in investment has led to a substantial increase in average turnover, with the market experiencing a 154.6% week-on-week rise to close at $527.5 million. The influx of foreign capital has been driven by the high-yielding nature of Nigerian government securities, which have attracted investors seeking to diversify their portfolios and capitalize on the country’s economic growth prospects. Key drivers of the surge in foreign investment include: + High-yielding government securities + Growing economic growth prospects + Increasing investor confidence in the Nigerian economy + Diversification of portfolios
The Impact on the Nigerian Economy
The influx of foreign capital has had a significant impact on the Nigerian economy, with far-reaching consequences for the country’s financial sector. The increased investment has led to a boost in economic growth, as foreign investors have injected new capital into the system, creating jobs and stimulating economic activity.
