With multiple exchange rate windows and a huge disparity between the official and black market rates, Nigerians are fast losing faith in the management of the forex market and this clearly manifested in several ways.
The exchange rate between the naira and dollar fell to as low as N735/$1 last week shortly after the Central Bank of Nigeria (CBN) announced a hike in interest from 14 percent to 15.5 percent, the third consecutive increase in 2022.
In July, the apex bank raised the MPR from 13 per cent to 14 per cent to tame rising inflation.
Barely a week after the announcement, the exchange rate has declined further to N740-N750 but moderated to N730/$1 on the black market on Wednesday representing a 1.35 per cent appreciation from the N740/$1 recorded in the previous trading session.
Traders have also lost faith in the official market and its current design and will only sell dollars when there is an absolute need to fund naira-related expenses. When they don’t need to spend, they hold on to their forex jealously for fear of holding on to a fast depreciating currency.
Students, businessmen, and personal travelers seeking forex have also lost confidence in the official forex market, resorting to the black market to meet their forex needs.
The broken exchange rate market has also ensured companies with significant dollar earnings or inflows resort to the black market to sell their forex instead of selling on the official Nafex window.
According to some analysts, the multiple exchange rate system and limited access to foreign exchange is a significant obstacle for businesses to operate. This exchange rate system and its inherent volatility deter investments in Nigeria.
According to the Lead Consultant, Industry & Private Sector Development at ECOWAS Commission, Professor Ken Ife the challenges of the instability in the foreign exchange market is more of structural and fiscal imbalances than monetary policy issues.
In his own opinion, the Chief Consultant at B. Adedipe Associates, Dr. Biodun Adedipe, stressed the need for Nigeria to undertake a comprehensive overhaul of its economic and governance system to stem the tide of exchange rate and price volatility.