Black market struggles after Naira’s big drop on official market

The naira fell 36% on Wednesday, the most in seven years, after the Central Bank of Nigeria removed controls and allowed the currency to trade more freely against the dollar.

– Key points to note

The move drove the naira to a record low of 750 to the dollar on the official market, down from Tuesday’s low of N477.

At the black market, where the dollar traded at N745 Wednesday morning, traders in Abuja told Pluboard the rate stood at between N747 and N750 by afternoon as traders showed caution with their buys.

The decision comes days after President Bola Tinubu suspended the central bank governor Godwin Emefiele who supervised much-criticised multiple exchange rates analysts say drove away foreign investments.

“What we are seeing is the removal of distortions created by inefficient pricing of foreign exchange and in the next few weeks we should start seeing the naira finding its level,” Bismarck Rewane, CEO at Financial Derivatives Company, was quoted by Reuters Wednesday.

The use of multiple exchange rates under Mr Emefiele was one of the reasons for Nigeria’s many economic problems. It fuelled arbitrage and limited foreign inflows as it made it difficult for investors to get their money from the country.

The last time the naira recorded a big fall on the official market was in 2016, a year after former President Muhammadu Buhari came to power and promised economic reforms that never materialized. After the plunge, the CBN introduced a managed exchange rate in 2017.

The bank has not made a formal announcement yet.

“What happens if the naira is devalued: imports cost more, exports earn more, budget deficit lower, FGN & States earn more, purchasing power falls $ inflow increases, no more parallel market, now only tax evaders go there, local goods sell more (caveat goods with low foreign input),” said financial analyst Kalu Aja.

– Upbeat performance

President Tinubu has made clear one of his government’s priorities is to unify the exchange rates. He scrapped fuel subsidy the day he took office, sending the price of petrol to nearly threefold.

Markets have responded to the decisions with upbeat performance.

Nigeria’s dollar bonds rose on Monday after Friday’s suspension of Central Bank of Nigeria governor, Godwin Emefiele.

The 10-year dollar-denominated bonds or Eurobonds surged 2.6 cents before falling slightly.