Nigeria’s currency rebounded in the illegal market as the central bank boosted sales of dollars to commercial banks, according to traders.
The currency strengthened to an average 540 to a dollar on Friday from about 570 a week ago in the unauthorized markets in Lagos and other cities where the foreign currency is freely traded, according to Abubakar Mohammed, chief executive officer for Lagos-based Forward Marketing Communications bureau de change Ltd. It gained 0.2% to 413.48 a dollar at the spot market as of 2 p.m. in Lagos.
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The Abuja-based Central Bank of Nigeria increased dollar sales to banks for distribution to businesses and individuals, which helped cut the number of customers that resort to buying foreign currency from unauthorized money changers. Nigerians buy the greenback from traders to pay for business travels, school fees and medical bills abroad, Aminu Gwadabe, president of the Association of Bureau de change Operators of Nigeria said by phone.
In July, the regulator halted dollar supply to bureau de change operators, accusing them of aggravating the shortage of foreign currency by selling it on the black market. That didn’t stop the naira’s slide. In the past weeks, the regulator increased supply to banks and allowed more flexibility for the currency to weaken in order to attract more inflows.
The central bank didn’t reply immediately to phone calls and messages seeking comments.
The market is just seeing the impact of larger central bank dollar sales on the naira in the parallel market, said Samir Gadio, London-based head of Africa strategy at Standard Chartered Bank.
Africa’s largest crude producer has been forced to devalue its currency three times since March 2020 after lower oil prices put pressure on dollar reserves. Last month, Vice President Yemi Osinbajo called on the central bank to adopt a market reflective exchange rate to improve foreign currency supply and stabilize the naira.
“Continuous appreciation of the naira will depend on liquidity,” Gwadabe said. “If the central bank continues to put framework and structure that will ensure liquidity, definitively we’ll see appreciation at the parallel market.”