The naira, which rose to N1,480 per dollar at the beginning of June 2024, fell to a new low of N1,610 on Wednesday against the dollar following dollar scarcity in the parallel market, popularly called the black market.
Traders in Lagos bought dollars from individuals at the rate of N1,600 and resold at N1,610 in the black market. This represents an 8.8 per cent (N130) loss in two months and an N5 loss compared to N1,480 two months ago and N1,605 quoted for the past three trading days. The dollar quoted at N1,610 last time was on July 30, 2024.
“The dollar is scarce in the market, but the demand is not much due to the high cost,” one street trader told BusinessDay on Wednesday.
“This period is summer, people are traveling. Aside from the fact that foreign students are looking for school fees, there are some of the factors,” said Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting.
The naira on Wednesday gained 3.12 per cent as the dollar was quoted at N1,543.84 compared to N1,592.06 quoted on Tuesday and N1,579.22 quoted on Monday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to data from the FMDQ Securities Exchange Limited.
The Federal Government of Nigeria, through the Debt Management Office (DMO), last week, unveiled a year-tenor tax-exempt bond worth $500 million to local and foreign investors.
While many have assumed that FG’s dollar bond offer is fueling scarcity on the parallel market, most analysts who spoke with BusinessDay did not believe this assumption.
Gbadebo Adenrele, managing director of UnitedCapital, explained that cash deposits are not accepted for the dollar bond transaction.
“Even if you deposit cash into your domiciliary account, it must remain there for at least 30 days before the offer opens. We have implemented several measures to ensure this does not disrupt the foreign exchange market,” he stated.
Ayodele Akinwunmi, senior relationship manager, corporate banking group, FSDH Merchant Bank, said: “The black market for FX should not exist in the first place if the official market is well supplied.”
The Central Bank of Nigeria (CBN) resumed retail dollar sales through the retail Dutch auction system and sold over $1.7 billion in two auction days.
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Aminu Gwadabe, president Association of Bureau De Change Operators of Nigeria (ABCON), said the Federal Government’s dollar bond should have bolstered market confidence in liquidity. However, the market is currently facing persistent liquidity shortages.
While the CBN is leveraging interest rates and foreign exchange market interventions to boost liquidity, fundamental market dynamics are hindering the achievement of these goals.
The naira continues to depreciate against the dollar due to a loss of value, weakened investor confidence, soaring inflation, and security challenges. These factors collectively undermine the CBN’s efforts.
“To address these challenges, I recommend enhancing stakeholder collaboration, improving communication channels, and conducting policy strategy stress tests,” Gwadabe stated.
“The central bank has made substantial efforts to stabilise the foreign exchange market, which has led to increased foreign portfolio investment inflow and a reduction in exchange rate volatility. In addition to current measures being taken by the Bank, medium and long-term strategies are being explored to ensure that the exchange rate settles at a market determined equilibrium level,” Bala Moh’d Bello, member of the Monetary Policy Committee (MPC), in his statement at the last meeting in July 2024.
Olayemi Cardoso, CBN governor, noted in February 2024 that the exchange rate in Nigeria has increased/depreciated due to the simultaneous occurrence of two factors: a decline in the supply of US Dollars coinciding with a surge in the demand for
He noted the growing number of Nigerian students studying abroad, saying over the past decade, foreign exchange demand for education and healthcare has totalled nearly US$40 billion.
Personal Travel Allowances accounted for $58.7 billion during the same period. Notably, between January and September 2019, the CBN disbursed $9.01 billion to Nigerians for personal foreign travel.
