With N50 difference, parallel/official exchange rates near convergence

The naira, on Wednesday, appreciated at the parallel section of the foreign exchange (FX) market, gaining 6.25 percent to trade at N1,350 per dollar.

Currency traders in Lagos, also known as bureau de change operators (BDCs), quoted the buying rate of the greenback at N1,300 and the selling price at N1,350 — leaving a profit margin of N50.

At the official section of the FX market, the local currency appreciated by 5.97 percent to N1,300.43/$ on Wednesday — from N1,382.95 on March 26.

At the FMDQ Exchange, a platform that oversees official FX trading in Nigeria, the naira recorded a high of N1,460 and a low of N1,200.

With a N50 difference, the official and parallel market exchange rates are nearing convergence — a situation that (at a sustained full convergence) could dry up street market patronage in favour of the official side.

On March 26, the Monetary Policy Committee of the Central Bank of Nigeria (CBN) raised the monetary policy rate (MPR) from 22.75 percent to 24.75 percent.

Speaking on the rationale behind the raise, Olayemi Cardoso, CBN governor, said the major objective of the apex bank is to manage inflation, but said the bank is not “unmindful of the impact that the interest rate increases are having”.

He said with the interest rate increases, the FX market “becomes a lot more lively” — a situation the CBN governor said is reducing the exchange rate and cost.