Nigeria’s currency has been on a steady fall against the dollar on the black market and may fall to N500/$ next week as scarcity of the greenback persists.
This is despite over $1 billion sold by the Central Bank of Nigeria (CBN) to the Bureaux De Change since September 7, 2020 when it resumed dollar sales the operators.
On Thursday, the naira exchanged with the dollar at an average rate of N490.33k day-on-day. This represents N4.33k loss when compared with an average rate of N486 that it exchanged on Wednesday on the parallel market.
Traders told BusinessDay on Thursday that there was increased demand amid dollar scarcity.
The foreign exchange market has been under pressure since March 2020 following a sharp drop in oil prices as a result of the Covid-19 pandemic.
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Olalekan Aworinde, senior lecturer, Department of Economics, Pan-Atlantic University, Lagos, said it could have been worse if not that the CBN is managing the exchange rate. He said the naira weakening has an inverse relationship with import.
“There are so many factors that affect the FX. It will continue to depreciate unless something is done immediately. Let us reduce the demand for import goods,” Aworinde said.
“If we don’t produce and everybody is demanding for the dollar at every particular time, I can tell you that naira will continue to depreciate,” he told BusinessDay on the phone Thursday.
Another factor, he said, is that the economy is contracting, which shows that the country is not producing.
He said, however, that with the approach of yuletide period when a lot of diaspora Nigerians are expected to bring in dollar, that could in a way improve the face of the naira.
“But as it is, we are not producing anything. We are a consuming nation and because of that things will get even worse than what we have presently,” he said.
Nigeria’s external reserves, which give the Central Bank the muscle to defend the naira, have declined by 11.08 percent year-on-year to $35.45 billion as at November 24, 2020, compared to $39.87 billion as of November 25, 2019, according to data obtained from the CBN website.
At the Bureau De Change (BDC) segment of the foreign exchange market, naira weakened by N5 as the dollar sold for N490 on Thursday as against N485 on the previous day.
Over 5,000 BDC operators received dollar allocation from the CBN on Thursday after funding their account on Wednesday. The CBN sells $10,000 twice weekly to the BDCs and has sold over $1 billion to them since it resumed dollar sales after the lockdown occasioned by Covid-19 pandemic.
At the Investors and Exporters (I&E) forex market, naira depreciated by N1.86k as the market opened with an indicative rate of N388.15k on Thursday as against N386.29k opened with on Wednesday, data from the FMDQ show.
Naira depreciated significantly by 2.01 percent as the dollar was quoted at N393.25 on Wednesday as against the last close of N385.50 on Tuesday at the I&E window.
Analysts at FSDH research noted that most participants maintained bids between N382.00 and N394.83 per dollar.
The foreign exchange daily turnover declined by 68.21 percent to $52.09 million on Wednesday from $163.87 million recorded on Tuesday, data from FMDQ indicated.
The Monetary Policy Committee (MPC) held its last meeting of the year on Monday and Tuesday where it held the benchmark interest rate unchanged at 11.5 percent but was silent on foreign exchange (FX).
“There is no mention of exchange-rate policy in the communiqué. The assumption is that the current regime is appropriate, which tells us again not to expect a change in direction,” analysts at FBNQuest said.
Naira depreciation peaked at N520 per dollar on February 20, 2017, and later strengthened after the CBN announced a $500m intervention in the FX market using Non-Deliverable Forward (NDF) contracts and stepped up dollar sales on the interbank currency market.
Godwin Emefiele, governor of the CBN, said on Tuesday that the black market is a shallow market of only about 5 percent of the foreign exchange market which is patronised by people who go there for cash to offer bribes and corruption. Parallel market is the place where people who don’t want to provide documents go, he said.
“At the E& I (Import& Export) Window, the rate is about N386 or N387/$1. We don’t control the I & E window. Why will anyone use the parallel market to say that the exchange rate is over N480/$1?” he said.
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