The foreign exchange (FX) pressure continued on Friday as naira depreciated to an all-time low of N881.25 (average) per dollar at the parallel market.
After trading on Friday, naira fell to N890/$ in Abuja and N880/$ in Kano, while it was quoted at between N875 and N880 in Lagos Street markets popularly called black market.
Naira’s weakness is due to scarcity of the greenback occasioned by declining dollar inflows and external reserves.
However, this has worsened after the Central Bank of Nigeria (CBN) announced plans to redesign the banknotes.
“Dollars are very scarce. People, mostly the importers and even those who do not have immediate need of dollars, are buying and storing dollars,” a trader said.
Godwin Emefiele, governor of the CBN had warned that bank customers converting the local currency to dollar would be sanctioned and placed on Post-No-Debit (PND).
Nigeria’s currency has been on a free fall as a result of rising strong dollar, import demand, oil theft, fuel subsidies, currency speculation, record high money supply and weak productivity, analysts have said.
Read also:CBN’s FX sales decline fuels dollar scarcity, naira’s fall
Data from the CBN show that FX sales to the authorised dealers decreased by 1.02 percent quarter-on-quarter to $4.81 billion in the second quarter of 2022 compared to $4.86 billion in the first quarter.
External reserves of Africa’s largest economy have declined further by 1.98 percent month-on-month to $37.49 billion as of October 28, 2022, from $38.25 billion as of September 28, 2022, data from the CBN show.
Gross official reserves decreased by $3.0 billion year-to-date to $37.4bn, as of October 28, 2022.
“No meaningful accretion to the reserves this year despite high crude oil prices driven by tight oil supplies following the conflict in Ukraine,” Tunde Abidoye, head, equity research team at FBNQuest said.
Total reserves as of October 28, 2022, covered 8.7 months’ merchandise imports on the basis of the balance of payments for the 12 months to June 2022, and 6.6 months when services were added. As such, the benchmark is still above the international benchmark of three months of import covers.
At the Investors and Exporters (I&E) forex window, Naira appreciated by 0.06 percent as the dollar was quoted at N445.75 as against the last close of N446.00 on Wednesday, data from the FMDQ indicated.
Most currency dealers who participated at the foreign exchange auction on Thursday maintained bids between N431.00 (low) and N447.00 (high) per dollar.
The daily foreign exchange turnover increased by 143.41 percent to $166.88 million on Thursday from $68.56 million recorded on Wednesday.
Nigeria’s Central Bank last week announced plans to introduce new banknotes to replace the current N200, N500 and N1,000 Notes with effect from December 15, 2022.
There are several underlining reasons why this policy move is significantly affecting the exchange rate, according to the FSDH Research.
One of such reasons was the short conversion window. “Existing currencies shall cease to be legal tender from January 31, 2023. This short notice has heightened the demand for dollars in the parallel market,” FSDH Research said in its macroeconomic note for November 2022.
The report noted that since the beginning of the year, investment inflow (portfolio, Foreign Direct Investment (FDI) and other investments) into Nigeria has remained far below inflows recorded in 2019 before the COVID-19 pandemic.
“With such a low level of confidence, any policy move with the slightest level of uncertainty is expected to trigger a panic reaction from market players,” the report noted.
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