Official And Parallel Market Finally Converge as Naira Ends May Stronger
- The naira closed strongly in May, reducing gaps between official and parallel exchange rates
- Nigeria’s external reserves rose to $49.26 billion, boosting currency confidence and investor appetite
- Experts say oil price declines pose risks despite the naira's recent stability and liquidity surge
Pascal Oparada is a journalist with Legit.ng, covering technology, energy, stocks, investment, and the economy for over a decade.
Nigeria’s currency closed May with one of its strongest performances in recent months, as the gap between the official and parallel foreign exchange markets narrowed significantly, signalling improving stability in the country’s currency market.
At the official foreign exchange market, the naira appreciated by 0.16 per cent during the week to close at N1,373.25 per dollar.
Source: Getty Images
In the parallel market, commonly known as the black market, the currency weakened marginally to around N1,372 per dollar, leaving both segments virtually aligned.
The development marks a significant milestone in the Central Bank of Nigeria’s efforts to unify exchange rates and improve confidence in the foreign exchange market.
Rising reserves support the naira
The naira’s resilience was supported by continued growth in Nigeria’s external reserves, which rose by 0.57 per cent to $49.26 billion.
Analysts noted that while foreign exchange demand and liquidity pressures remain challenges, the increase in reserves has helped provide a buffer against volatility and strengthened market confidence.
Last week’s trading activity suggested that the gradual convergence of the official and parallel markets is becoming more entrenched, reducing opportunities for arbitrage and speculation.
Oil price weakness remains a concern
Despite the naira’s gains, developments in the global oil market continue to pose risks.
Brent crude, Nigeria’s benchmark oil grade, retreated during the week, falling from around $93.84 per barrel to $92.08, while West Texas Intermediate (WTI) dropped to $87.55 per barrel.
Market analysts attributed the decline to profit-taking and adjustments following April’s rally, which had been fueled by supply disruptions.
While stronger reserves are expected to support the naira in the near term, experts warn that sustained pressure on oil prices could affect Nigeria’s foreign exchange earnings over time.
Liquidity surges across financial markets
Nigeria’s money market remained awash with liquidity throughout the week.
System liquidity climbed from N3.84 trillion at the start of the week to N6.02 trillion by Friday, driven largely by a N1.97 trillion maturity of Open Market Operations (OMO) instruments and increased placements at the Central Bank’s Standing Deposit Facility.
Despite the liquidity surge, interbank lending rates remained stable, reflecting comfortable funding conditions within the banking system.
Investor appetite also remained strong in the fixed-income market. At the Central Bank’s May 29 OMO auction, the 102-day instrument attracted subscriptions worth N1.73 trillion against an offer size of N200 billion, highlighting robust demand for short-term government securities, according to a Guardian report.
Source: Getty Images
Outlook for June
Analysts expect liquidity conditions to remain strong in June, supported by anticipated inflows of approximately N3.35 trillion from the maturity of OMO and Treasury Bill instruments.
While foreign exchange demand and dollar liquidity constraints may continue to create occasional pressure, the near convergence of official and parallel market rates, coupled with rising reserves, offers a positive signal for the naira as the new month begins.
Gap between official and parallel markets widens
Legit.ng earlier reported that Nigeria’s foreign exchange market saw renewed volatility as the gap between official and parallel dollar rates stretched wider, raising new concerns about currency stability.
Fresh market data showed that the naira strengthened marginally on the official window but weakened in the informal market, creating a wider spread that signals deeper pressure on the economy.
The FX spread, which tracks the difference between official and black-market rates, widened to 1.70 per cent from 1.14 per cent the previous day.
Source: Legit.ng
