The Abuja foreign exchange market is experiencing a period of volatility following recent announcements by the Central Bank of Nigeria (CBN).
Inconsistent pricing and cautious optimism characterize the parallel market, where traders are grappling with the implications of the CBN’s new policies.
A visit to Wuse Zone 4, a major foreign exchange hub in Abuja, reveals a confusing situation for potential buyers. Currency traders are offering the dollar at varying rates, with some quoting N1,250/$ and others as high as N1,330/$. This inconsistency creates uncertainty for those seeking to purchase dollars.
Despite the price disparity, a general consensus exists among traders that holders of foreign currencies are cautiously selling their holdings. This measured approach suggests a wait-and-see attitude, where market participants are gauging the long-term impact of the CBN’s actions.
Traders in the parallel market remain unconvinced that the dollar price will experience a significant drop in the coming week. The CBN’s decision to sell $10,000 to Bureau De Change (BDC) operators at a rate of N1,200/$ with a 1.5% spread is viewed with skepticism. Many believe this price point may not be enough to entice a substantial downward movement in the parallel market.
The recent decision by the Monetary Policy Committee (MPC) to raise benchmark interest rates has instilled a sense of panic in the parallel market. Traders anticipate an influx of portfolio investors seeking to capitalize on the higher interest rates offered on Naira-denominated assets. This potential inflow of foreign exchange could theoretically lead to a decrease in the dollar price. However, the extent to which this materializes remains to be seen.
The Abuja foreign exchange market is currently in a state of flux. The combined effects of the CBN’s policy adjustments – increased dollar sales to BDCs and a higher interest rate – are yet to be fully understood. In the coming days and weeks, market participants will closely monitor exchange rates and adjust their strategies accordingly.
Besides the laws of supply and demand and economic conditions that affect the value of a local currency, raising interest rates generally should decrease not increase the value of the naira relative to the dollar. No wonder forex traders are confused.