Nigeria’s naira firmed sharply on the parallel market on Wednesday as retail traders, having anticipated a cut in its official rate and stocked up on dollars, bought the local currency back after the government said it would not devalue.
The naira firmed to between 302 and 310 per dollar, a rise of around 20 percent from Tuesday’s close of 364.
The naira rate closed at 197.50 on Wednesday on the official interbank market, where central bank curbs introduced late last year to defend a currency peg have restricted access to dollars.
That has funnelled demand for dollars on to the parallel market, a flow further fuelled by speculation of a possible weakening of the peg.
On Saturday, President Muhammadu Buhari rejected the idea of devaluing the west African nation’s currency, despite mounting pressure from an economic crisis caused by a sharp fall in the price of oil, Nigeria’s dominant export.
The parallel market naira had risen on Monday and Tuesday, and its gains gathered pace on Wednesday.
“The market is reacting to the president’s ‘no devaluation’ stance,” said Aminu Gwadabe, the head of the association of Nigeria’s bureaux de change operators. Authorities had stepped up efforts to rid the market of illegal currency traders, he added.
Gwadabe said the association was advising members to issue receipts to customers for foreign currency transactions in order to improve transparency and curb speculation.
He told Reuters on Monday that the association was working to introduce a single quote across the parallel market and maintain a bid-ask spread of 3.5 percent.
The unofficial market still accounts for less than 5 percent of Nigeria’s currency trades.
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