Dollar crashes by 6.45% to N1,450 on parallel market
By Sodiq Adelakun
The US Dollar experienced a significant crash on Wednesday, dropping by 6.45 percent against the Nigerian Naira on the parallel market, commonly known as the black market.
This sudden decline came shortly after the Central Bank of Nigeria (CBN) announced an increase in its benchmark interest rate.
On Tuesday, the CBN raised its Monetary Policy Rate (MPR), also referred to as the benchmark interest rate, by a substantial 400 basis points to 22.75 percent.
This decision marked a significant jump from the previous rate of 18.75 percent, which was set in July 2023.
As a result of the interest rate hike, the Naira experienced a notable appreciation of 6.89 percent, while the US Dollar plummeted to N1,450 on Wednesday, compared to the N1,550 it was being exchanged for on Tuesday on the black market though not yet been reflected in the official foreign exchange market.
The Naira depreciated by 2.04 percent, with the dollar being quoted at N1,615.94 on Tuesday, as opposed to the N1,582.94 it was quoted at on Monday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to data from the FMDQ..
During spot trading on Tuesday, the intraday high strengthened to N1,778 per dollar from N1,805/$1 on Monday. Also, the intraday low firmed marginally to N1,300 on Tuesday from N1,301 per dollar.
The daily FX market turnover declined by 7.45 percent to $154.16 million on Tuesday from $166.58 million recorded on Monday.
As of Wednesday, the Bureau De Change (BDC) operators have not yet received their dollar allocation from the CBN.
Although the reason is yet to be known, about 785 BDCs have been listed for the allocation, which the CBN approved of.
The CBN will sell $20,000 weekly to each BDC at a rate of N1,301/$, according to a circular published Tuesday. The BDCs are allowed to sell to end-users at a margin not more than one percent above the purchase rate from CBN.
The Monetary Policy Committee (MPC) meeting, which held on Monday and Tuesday, raised the MPR by 400 basis points to 22.75 from 18.75 percent., adjusted the asymmetric corridor around the MPR to +100/-700 from +100/-300 basis points, raised the Cash Reserve Ratio from 32.5 percent to 45.0 percent, and retain the Liquidity Ratio at 30 percent.
Governor of the CBN, Yemi Cardoso, who chaired the MPC said, “The MPC also deliberated extensively on various distortions in the foreign exchange market including the activities of speculators, putting upward pressure on the exchange rate with high pass-through to inflation.”
He said members were, however, convinced that the ongoing reforms in the foreign exchange market will yield the desired outcome in the short to medium term.
