The persistent pressure on the foreign exchange may see Nigeria’s currency hit N480 per dollar this week on the black market.
The dollar traded at N477 on the black market as at 11:32am on Monday, representing a N2.00k depreciation compared to N475 sold earlier in the morning. The weakening in the value of the naira is due to high demand by end users amid dollar scarcity.
The market has witnessed dollar shortages since early this year as a result of low oil prices, which accounts for about 90 percent of the country’s foreign exchange earnings and low inflows from remittances due to the Covid-19 pandemic.
At the retail bureau, the naira weakened by N1.00k as the dollar was trading at N476 on Monday as against N475 traded since last week.
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However, the naira showed marginal appreciation of 0.06 percent at the Investors and Exporters (I&E) forex window as the market opened with an indicative rate of N386.10k on Monday morning, according to the data from FMDQ.
“Shrinking foreign exchange revenue due to low oil price and production, as well as drying capital flow and remittances have precipitated an overall Balance of Payments deficit, with implications for exchange rate pressure,” said Godwin Emefiele, governor of the CBN, in his personal statement at the last Monetary Policy Committee (MPC) meeting in July 2020.
Following the outbreak of COVID-19, forex inflows into the I&E Window reduced on the back of lower Foreign Portfolio inflows, according to a report by FSDH Research.
Foreign Portfolio Investment (FPI) declined to US$57.7 million in May from US$2.04 billion in January 2020. The CBN intervention increased from US$390 million in January 2020 to US$2.48 billion and US$2.89 billion in February and March, respectively.
The attendant effect of COVID-19 on oil price constrained the CBN’s capacity to intervene further as dollar inflow dwindled in April.
Following the lockdown and restriction of economic activities in April and May, total inflows to the I&E Window dropped from US$3.19 billion in January to US$459.2 million in April and US$381.2 million in May 2020, the report noted.
Analysts at the FSDH Research said major factors responsible for the decline in foreign investment inflows include uncertainty on the economy especially given the outbreak of COVID-19 which has slowed overall investments.
Other factors include inconsistent policies, declining external reserves in Q1, insecurity and harsh operating environment for Foreign Direct Investment (FDI).
