The spread between the official and the black market Naira rate is widening. Officials say that the far weaker black market rate indicates the real value of currency more realistically. What is next for Naira?
29 June, AtoZForex – Six weeks passed since the African government introduced a system, which is supposedly market-driven. The system's main goal is to help the ailing economy. Currently, the official Naira rate (Nigeria‘s official currency) and the black market rate of the same currency is widening once again.
Is Official Naira rate not realistic?
According to Lagos traders, on Friday Naira hit N400 point against the dollar on the black market after falling all last week. Whereas on Monday, it was trading at N398. This figure is 25% weaker than the rate of interbank – N319 as well as it is the weakest level for the Naira since the Central Bank cancelled its sixteen-month currency peg in June.
The current situation suggests that the central bank was still intervening in order to prop up the official Naira rate. At least the analysts and business people in Africa’s biggest economy expressed such opinion giving the black market rate as a proof of their point of view.
John Ashbourne of Capital Economics in London thinks that the official Naira rate flatters the currency and the much weaker black market rate is a more realistic indicator of the currency’s actual value at the moment. He also added:
“The official market seems to be incredibly thin, there is not a lot going on there and it is keeping people in the black market. This will keep a pretty wide spread.”
Problems with liquidity
In June, the central bank switched to a market-driven currency system after which the wide spread between the official Naira rate and the black market rate showed a dollar scarcity, which worsened the economic situation of Nigeria during the last year. As the central banks did not ease the restrictions for the foreign currency importers, a lot of local firms continue to use the black market for sourcing their funds. Frank Jacobs, president of the Manufacturers Association of Nigeria said:
“Manufacturers are not getting much from the interbank market. There’s still a problem with liquidity and unmet demand.”
Right now all eyes are on the second-quarter GDP numbers that are scheduled to be released by the government’s Statistics Bureau in few days. As the economy contracted by 0.4% in the first quarter, and currently the IMF speculates that it will shrink 1.8% this year.
See also: Nigerian Central bank intervenes to support ailing naira
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