FX rate stabilizes since CBN/abokiFX controversy

Naira-and-dollar-1

The exchange rate between the naira and dollar at the parallel market has stabilized in the last three weeks hovering between N570-N575/$1. This is in stark contrast to a wild September where the naira depreciated rapidly in the first two weeks of the month.

At the end of August 2021, the dollar sold for N527/$1 as the CBN adamantly enforced up its ban of sale of forex to BDCs. But as supply dried up in the retail end of the forex market, mostly due to the ban, the exchange rate took a turn for the worst, depreciating by an average of N2.9 per day from the first day of September till the central bank clamped down on abokiFX, a local portal for black market exchange rates.

The Central Bank Governor, Godwin Emefiele shocked the financial world in Nigeria when in his monetary policy briefing on the 17th of September, took a swipe at abokiFX accusing it of foreign currency manipulations, suggesting that it profited by setting black market rates which deliberately increased the price. The website owners issued a press release categorically denying the accusations and subsequently suspended displaying forex rates on the platform pending the resolution of the situation.

Most forex traders have grown familiar with the currency aggregating website to help determine the exchange rate rather than relying on BDC operators who sometimes offer disparate prices. With abokiFX there was a benchmark for everyone to utilize in determining what the price is. However, users of the site do not know how the prices are determined even though abokiFX maintains that it gets its price from exchange rate operators.

Exchange rate stabilizes

A recent tracking of the black-market exchange rate conducted by Nairametrics revealed that the exchange rate has stabilized since the infamous CBN MPR meeting of September 17 where the apex bank accused abokiFX of manipulating currency exchange rates. The exchange rate closed at N564/$1 on that day and went as high as about N577/$1 days after, but has since sold between N572-N570/$.

Nairametrics does not have any proof that this was connected to the suspension of publishing daily rates by abokiFX as there could be several reasons why rates have stabilized in the past few weeks. For example, we have observed a spike in dollar turnover at the I&E window. The demand pressure associated with September may also have been hinged on foreign tuition demand which has now largely waned. There is also economic hardship with very few people lacking the liquidity required to speculate on the currency. Oil prices are also on a rise giving the dollar reserves a potential boost albeit in the short-term.