Parallel Market Pressures: No End in Sight?


Wednesday, September 15, 2021 / 09:20 AM / by United Capital Research / Header Image Credit: BBC

In recent weeks, FX pressures have intensified in the parallel market with the exchange rate closing at a record low of N550.0/$ on Monday, 13th Sep 2021. We discussed the possible impact of the Central Bank of Nigeria's (CBN) decision to stop dollar sales to BDCs in our last note on the parallel market, "Recent FX Pressures: Storm Before the Calm?" Since then, the parallel market storm has persisted due to the supply cut from the CBN, as well as muted improvement in turnover at the Investors & Exporters window, which rose by 0.3% m/m in Aug-2021.

The CBN has notably intensified efforts to combat "dollarisation" in the country. The bank released a circular directing Microfinance Banks to stop engaging in FX transactions. Also, according to recent reports, the apex bank recently moved to stop Ministries, Departments and Agencies (MDAs), as well as airline operators from collecting payments in foreign currency. These actions come amid persistent strain on foreign exchange reserves, which began with the epidemic and has yet to subside due to weak crude production and insufficient capital importation.

Proshare Nigeria Pvt. Ltd.

Looking ahead to the CBN's Monetary Policy Committee on Thursday and Friday, all eyes will be on the apex bank to see if it would take any steps to ease parallel market pressures. We note the CBN moved forward the MPC meeting from 20-21 September which could indicate a major policy is in view. That said, it remains unclear what the policy would speak too, if any. However, given the CBN's continual reiteration that FX transactions outside the official market are illegitimate as well as its historical hard stance towards the BDCs and parallel market,  we think the regulator may remain unwilling to reverse its earlier decision to stop FX sales to BDCs. Thus, as the official market remains inaccessible to Nigerian businesses that operate in items on the CBN's FX restriction list, including key imports like rice, clothes and palm oil, the pressure on the parallel market rate will likely persist in the medium term.

Proshare Nigeria Pvt. Ltd.

Related News

  1. Parallel Market Rate at an All-time High of N550
  2. Observance of Due Diligence in the Processing of Foreign Exchange Transactions
  3. Remittance to Africa Projected to Decrease in 2021
  4. Naira Depreciated by 1.10% WoW in the Parallel Market at an Average Exchange Rate of N532.00
  5. Gross Official Reserves Increased by US$610m to US$34.02bn in August 2021
  6. IEFX Total Transaction Value Decreased by 4.86% to $629.34m
  7. Nigeria-China Currency Swap: Still Waiting for a Deal
  8. Evaluating BDCs' Creative FX Supply Sources, Parallel Market Rate Hits N527
  9. A Significant Reduction in FX Utilisation
  10. Naira Depreciated at the Parallel Market by -0.54% WoW to N518.60 from N515.80
  11. Recent FX Pressures: Storm Before the Calm?
  12. The Definitive Guide in Investing in The Right Order
  13. Best Forex Brokers: 5 Top Forex Trading Platforms
  14. Naira Depreciated at the Parallel Market by -1.02% WoW to N515.80 from N510.60
  15. NAFEX Rate Depreciated by -0.003% WoW to N411.17 from N411.16
  16. A Sharp Fall in the CBN's Supply of FX
  17. Gross Official Reserves Rose by US79m to US33.4bn in July 2021
  18. Expect Increasing FX Rates Convergence in Coming Months
  19. Naira Appreciated by 0.23% WoW in the Parallel Market at an Average Exchange Rate of N510.80
  20. Examining the Impact of Exchange Rate Volatility in Nigeria
  21. The New Forex Ban and its Short Term Market Reaction
  22. Ecobank Nigeria Assures Customers Of Smooth Forex Transaction


 Proshare Nigeria Pvt. Ltd.

Related News