The FX market closed with a 0.89 percent naira loss in less than 12 hours due to increased demand for dollars at the parallel market, also known as the black market.
On Wednesday, the dollar was quoted at N785, lower than N778 in the morning trading session. Demand for travel and school fees led to a 3.52 percent appreciation in the naira at the Investors and Exporters (I&E) forex window. The dollar was quoted at N742.31 after trading, compared to N768.44 on Tuesday.
The CBN abolished segments of the official FX market on June 14, 2023, reintroducing the “willing buyer and willing seller” concept. This adjustment raised the official rate from N463.38/$ to N742.31, the current rate. The exchange rate regime for six years had a highly managed official rate and a lack of clear price discovery due to multiple FX windows.
The CBN imposed administrative controls to reduce FX demand and preserve reserves while maintaining a stabilized official rate. This led to limited FX supply at the official rate, forcing economic agents into parallel markets to meet their FX requirements. Administrative controls included banning FX imports for 43 products since 2015 and reducing FX supply interventions since 2020.
FX market distortions have increased in recent years, leading to overvaluation of official rates. The Nigerian Autonomous FX Rate Fixing (NAFEX) rate was N465 per US dollar in May 2023, while the parallel market rate was N763 per US dollar, resulting in a 63% premium over the NAFEX rate, among the highest premiums globally.
