In a notable turn of events, Nigeria’s currency market experienced a substantial inflow of $1.41 billion in June, as disclosed by the central bank on Thursday. This surge followed the dismantling of a multiple exchange rate framework that had been artificially propping up the naira’s strength.
With the central bank’s June decision to remove foreign exchange trading restrictions, the naira witnessed a deliberate depreciation of over a third, marking a significant move within President Bola Tinubu’s economic reform agenda. This progressive step resonated positively with investors, leading to increased confidence in the Nigerian market.
Preceding the relaxation of restrictions, May witnessed an inflow of $1.14 billion into the currency market, a trend that gained momentum into June. The recent surge of funds can be attributed to corporate entities and exporters.
Nigeria’s currency market, once vibrant and trading millions of dollars daily, had seen a decline since the introduction of restrictions in 2017. A combination of factors, including dwindling oil prices and the subsequent exit of foreign investors from local assets, led to dollar shortages. However, the lingering absence of investors and unresolved demand for dollars from both foreign investors seeking fund repatriation and airlines attempting to transfer ticket sale revenue has left a void.
The dearth of available dollars prompted some businesses and individuals to turn to the unofficial black market, where the naira’s value is comparatively weaker. This divergence from the official exchange rate has caused a widening gap.
The naira’s performance illustrates this gap clearly; it hit an unprecedented low of 920 per dollar on the black market, juxtaposed against the 771 naira exchange rate on the official market as of Thursday.
