Naira hits record N530 per dollar on parallel market

Naira, Nigeria’s legal tender on Thursday fell to N530 per dollar on the parallel market also known as the black market.

The depreciation of the Naira was a result of increased demand for dollars by importers who could not access the greenback from the banks due to documentation issues, traders said.

On July 27, 2021, the Central Bank of Nigeria (CBN) stopped dollar sales to the Bureau De Change (BDC) operators due to foreign exchange infractions. The CBN also directed banks to sell dollars for the legitimate needs of the end-users.

Such legitimate needs include Personal Travel Allowance (PTA), Business Travel Allowance (BTA), school fees, and medicals.

Read also: What Nigerians should expect with launch of e-Naira

At the Investors and Exporters (I&E) forex window, Naira depreciated by 010 percent to N411.50/$ despite increased liquidity as the market daily turnover printed at $486.31 million on Wednesday.
Olusegun Akintunde, an analyst at Polaris Bank Limited, said the CBN’s foreign exchange control measures are working as forex roundtripping has reduced.

He noted that some black market operators who used to get dollars from the BDCs could no longer do so since the CBN has stopped dollar sales to that market segment, adding that demand still remains amid dollar shortage.

The lack of improvement in the latter, despite the sharp rise in oil prices YTD, is particularly concerning, said Mohamed Abu Basha, head of macroeconomy – EFG Hermes, Investment Banking and the leading financial partner in Frontier Emerging Markets (FEM).

“We direct our focus to the upcoming Eurobond issuance – planned for September – as it is a potential trigger for much-awaited FX adjustment. As we mentioned in our previous reports, we were looking forward to the International Monetary Fund (IMF)’ Special Drawing Rights (SDRs) allocation and Eurobond providing valuable ammunition, therefore enabling the CBN to bring FX markets under control,” Basha said.

The SDR allocation took place earlier this week, boosting reserves by the equivalent of USD3.3bn. The upcoming Eurobond issuance, likely to be around USD3-5bn, would potentially mean that a USD7bn reserve boost would be available to the CBN.

“We anticipate the CBN to use this by devaluing the Naira to NGN430/440, pushing the parallel rates (currently trading at NGN522) to converge to the said range.

“We believe the devaluation, which would still add some inflationary pressure, should be accompanied by a tightening of monetary policy in order to bring interest rates to levels that are attractive to foreign investors,” Basha said in a note made available to BusinessDay.

The Federal Government (FG) of Nigeria had in May 2021, disclosed its plans to issue over $3 billion in Eurobonds as international capital markets (ICM) open up and interest rates decline.

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