Why Naira May Hit ₦1,200 — Black Market Operators

The Nigerian Naira has shown significant appreciation against major currencies in recent weeks, particularly against the US dollar. In the parallel market, commonly referred to as the black market, the Naira now trades at about ₦1,500 per dollar, with projections it could strengthen further to ₦1,200. Here are the key factors driving this trend:

1. Policy Intervention by the Central Bank of Nigeria (CBN)

The introduction of the Electronic Foreign Exchange Matching System (EFEMS) by the CBN has greatly improved transparency and efficiency in the forex market. This system allows for real-time tracking of trades, creating a balanced and stabilized market environment. Banks and traders now use the Bloomberg BMatch platform under this system to align market activities, which has contributed to the Naira’s recent performance.

2. Increased Dollar Inflows

The festive season has brought about a surge in dollar inflows from Nigerians in the diaspora:

• Remittances: Many Nigerians abroad are sending money home to support family activities during the holiday period.
• Increased Spending: Local spending in preparation for the holidays has also resulted in greater dollar supply in the market.

3. Speculative Selling

With the Naira appreciating daily, many traders and individuals who previously hoarded dollars are now rushing to sell, fearing further losses. This speculative activity has resulted in an oversupply of dollars in the black market, putting downward pressure on the exchange rate.

4. Market Convergence

The gap between the official exchange rate and the parallel market rate has narrowed significantly, from over ₦100 earlier in the year to just ₦20. This development has restored some level of confidence in the Naira and reduced the demand for forex in the black market.

5. Broader Impact on Other Currencies and Commodities

The Naira’s appreciation isn’t limited to the US dollar. Other currencies, such as the British pound and euro, have also dropped in value relative to the Naira. Furthermore, commodity prices, including gold and silver, have seen significant declines, reflecting a more stable local currency.

Outlook: Can the Naira Sustain This Momentum?

While optimism is high, sustaining the Naira’s upward trend will require consistent implementation of policies like EFEMS, continued inflow of foreign currency, and broader economic reforms to tackle structural challenges. If these conditions persist, the Naira hitting ₦1,200 in the parallel market is not far-fetched.