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Nairametrics
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Home Markets Currencies

A Familiar Pattern Is Rearing Its Head On The Black Market

Nairametrics by Nairametrics
March 24, 2017
in Currencies
A Familiar Pattern Is Rearing Its Head On The Black Market
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Nairametrics| The exchange rate closed on Thursday at a price of N400 on the black market. If you wanted to sell to black market operators, you’d probably be selling at any price between N380 t0 N395. The spread between buying and selling of the green back now more than N10. Some thing we last saw when the new exchange rate policy was introduced.

The widening gulf between the buy and sell disparity is a pattern that we rears its head whenever the market is panicking. It triggers a volatility to scares the pits out of currency speculators and even traders.

The current panic is being fed by the determined CBN on a mission to crash prices below N400 and burn speculators. As reported on this blog a few days ago, the CBN has been funneling dollars to commercial bank who are now complaining of a possible glut. There is not just enough retail buyers anymore according to some sources.

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It appears that BDC operators are also fretting. Some of them believe that the N400 support will be breached this week and we may be heading for a price of N380 by Month’s end, if the CBN keeps “pumping” dollars. Critics of the CBN would also have you believe that they cannot sustain this on the long run. Soon, they will burn the reserves out and we may just be back to N600. These days, predictions like these are hedged with a “except they float” remark.

This market has proven unpredictable to say the least. How do you explain the fact that it has taken just over a month to bring the exchange rate to the lowest point since August 2016 in just one month? The unpredictable nature will continue to spook traders and speculators for weeks to come until it is quite clear how far the CBN can go.

For now, the gulf between buy and sell is an opportunity to make money for some traders and at the same time could swallow them into a pit of losses.

 

Tags: Black Market
Nairametrics

Nairametrics

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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Comments 7

  1. Joseph says:
    March 24, 2017 at 5:01 am

    This article seem pessimistic. First we were worried about the gap between the black market and official rates. Now that the gap is closing out, we should be worried about the gap between Buy and Sell rate in the BLACK market. Not only that but we should be worried that it is closing out too quickly…I think there are better ways to balance views on issues like this.

    Reply
  2. Ayodele sofola says:
    March 24, 2017 at 11:09 am

    Joseph the blame is not the article, rather its cbn that is unclear about its stance on the exchange rate market. There’s no clear path from the cbn,hence the haphazard movement in price.

    Reply
  3. Aaron Ugede says:
    March 24, 2017 at 2:21 pm

    @Ayodele Sofola I have continuously heard people like yourself say the CBN has no clear FX policy direction. Yet the economic recovery plan very clearly stated CBN’s intentions with regards to forex. The forex issue in Nigeria has not been a policy one since the last policy adjustment from CBN which allowed banks to sell forex at the airports as well. It has been a supply issue and since the CBN is able to meet demand in the time being, the Naira has been able to beat the dollar blue and black to its current rate of 380 to the dollar. If this can be sustained until the dangle refinery comes on stream first quarter next year, eliminating the 30% dollar demand required for importation of petrol, then the dollar demand will further crash and the Naira could well be exchanging for about 150 Naira to the dollar by year end 2018.

    Reply
    • emmanuel says:
      March 27, 2017 at 11:05 am

      If the CBN has a clear cut programme in place, the official rates ought to beginning looking southward, but they have held on to that, for ease of financing the budgets. The implication is that as the reserves thin down, the supply will reduce and the alternate market will be back on rampage.
      The reserve will be grossly depleted if the wholesale users of FX are also supplied. As of today, most still look the way of the alternate market.
      This issue is not a philosophical one, but more of fundamentals and facts

      Reply
  4. Aaron Ugede says:
    March 24, 2017 at 2:24 pm

    Correction to my post: I notice auto correct changed my spelling of Dangote to dangle. The correct thing is : ‘If this can be sustained until the Dangote Refinery comes on stream first quarter next year,’

    Reply
  5. Oluyemi Rufai says:
    March 24, 2017 at 3:43 pm

    For your information, what is playing out is simply ‘perception game’, which is key to strengthening any currency. The CBN still do not have enough dollars to meet demand, simply put, what they have done recently (which should have been done before now) is to supply the retail end of the demand-market (which makes up a tiny fraction of the aggregate demand), this way, the perception will be that there is enough dollars now to go round, meanwhile, this is not the case. Manufacturers, companies and businesses are still not able to access dollars to meet different obligations; be it raw material imports, or repayment of outstanding loans. This is the actual case. And what the CBN is trying to clear with this segment of the market (wholesale end), is existing backlogs that have piled up for months. You will have also noticed that the reserve is depleting again gradually (partly because crude oil price has gone down slightly and also because of CBN’s pump action). In reality, there is still not enough dollars to meet demand, it’s a case of the BDCs or sellers panicking and unaware of the true picture. In any case, it looks good for Nigeria, but until there is an official devaluation again, FDI will continue to be on the fence.

    Reply
  6. Anodebenze says:
    March 24, 2017 at 4:44 pm

    The cbn did warn forex speculator in the mber months of last year.if you you go back in nairametric,you will find series of warning issued by the cbn,and I saw it today,which i glanced today,i did not want to say anything,but somebody said the cbn have no economic or monetary polices.they are cutting those speculators balls with sharp razor blade.killing them slowly.God Bless Nigeria and Godwin my best friend.

    Reply

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