Naira Falls Massively at Black Market As Demand for Dollar Increases– See Updated Exchange Rate below.
In a recent development that has sent ripples through Nigeria’s financial landscape, the Nigerian Naira has reached an all-time low of N970 per US dollar. This significant devaluation has raised concerns and drawn attention to the dynamics at play in the foreign exchange (forex) market. Let’s delve into the details of this situation.
Naira’s Rapid Depreciation
The latest update on the Naira’s exchange rate highlights a rapid decline in its value. In less than a day, the local currency lost 0.60 percent of its value. Just a day earlier, on Thursday, the Naira was exchanged at N950 per US dollar. While this rate was stronger than the previous day’s closing rate of N950/$1, it remained weaker than the N940 exchange rate observed on Wednesday in the black market.
At the Investors’ and Exporters’ (I&E) forex window, which represents Nigeria’s official FX market, the Naira experienced a more significant decline. Here’s a breakdown:
- On Thursday, the Naira was quoted at N780.00 per US dollar, marking a 2.88 percent drop from the previous day’s rate of N758.12.
- The Naira’s value had weakened further from N742.10/$1 quoted on Tuesday, as per data from the FMDQ.
Increased Demand for Dollars
The primary driver behind the Naira’s depreciation is the intensified demand for US dollars, particularly in the black market. Various factors have contributed to this heightened demand:
- Business Travel: Businesses and individuals are purchasing dollars for international travel and transactions.
- School Fees: Many Nigerians pay tuition fees in foreign currencies, necessitating the purchase of dollars.
- Medical Expenses: The cost of medical treatment abroad often requires the exchange of Naira for dollars.
- Tourism: Some individuals are acquiring foreign currency for leisure travel and tourism.
Analyzing the Forex Market
The Naira’s woes have prompted financial analysts to scrutinize the forex market and offer insights into potential remedies. Vetiva Research has weighed in on the situation with the following observations:
- The Naira’s recent decline follows the Nigerian authorities’ move to unify foreign exchange rates. This bold step aimed to streamline the forex market.
- Short-term measures, such as a medium-term multilateral loan and the reintroduction of Bureau de Change operators, are being considered. However, analysts at Vetiva believe that these measures may not suffice without an organic increase in FX supply and sterilization.
Outlook for the Naira
Looking ahead, the Naira faces continued challenges. Analysts expect that its value may remain under pressure until there is a significant recovery in oil production. They also anticipate increased interventions to slow down the pace of depreciation in the parallel market.
Vetiva has suggested that Bureau de Change (BDC) operators could be reintegrated into the official forex framework. This reintroduction would come with specific regulations, including a mandatory rendition of returns.
However, the underlying issue remains the low FX supply. To bridge the FX gap, measures to boost crude oil supplies and organically grow external reserves are deemed essential.
Sufficiency of Reserves
It’s worth noting that Nigeria’s foreign reserves are deemed sufficient to cover its current account, which currently boasts a surplus. This balance indicates that the country’s inflow of goods and services, investment incomes, and other financial transactions remains favorable.
In conclusion, the Naira’s depreciation and the dynamics of the forex market are complex issues with significant economic implications. As Nigeria navigates these challenges, it’s essential to monitor developments closely and consider measures to strengthen the nation’s financial stability.