ABUJA, Aug 10 – Nigeria attracted inflows of $1.41 billion into its currency market in June, the central bank said on Thursday, after it scrapped a multiple exchange rate system that used to keep the naira artificially strong.Thank you for reading this post, don't forget to subscribe!
Even as naira plunged to a record low of N925/$1 on the parallel market yesterday as demand for foreign currency outstripped supply.
This is the aftermath of liberalising the foreign exchange regime, which is a clear departure of what obtained during the Presidential Muhammadu Buhari- led administration.
Nigeria’s central bank lifted restrictions on foreign exchange trading in June and allowed the naira to weaken by more than a third, in one of President Bola Tinubu’s economic reforms, welcomed by investors.
The bank said $1.14 billion came into the currency market in May, before restrictions were lifted. It said that the June inflows came from companies and exporters.
Nigeria’s currency market used to trade hundreds of millions of dollars a day before restrictions were introduced in 2017.
The country has faced dollar shortages after foreign investors exited local assets in the wake of previously low oil prices. Since then investors are yet to return and the central bank has not yet settled outstanding demand for dollars from foreign investors seeking to repatriate funds, and airlines seeking to send money from ticket sales abroad.
As a result of the shortages, some businesses and individuals have turned to the unofficial black market, where the currency is trading weaker, thereby widening the gap with the official rate.
The naira was quoted at a record low of 920 per dollar on the black market on Thursday compared with 771 naira on the official market.
Naira Collapse to US Dollar
I & E window closes at N757/$1
Meanwhile, in the official Investor and Exporter Window, the exchange rate closed at N757.81/$1 while the NAFEX rate was N776. The official market also faces supply constraints, with daily turnover averaging $80 million since July.
The peer-to-peer market, where cryptocurrency traders exchange forex, also saw the exchange rate soar above N900/$1.
Naira falls 19.8% since Fx unification
The exchange rate between the naira and dollar has weakened by 19.8% since the reunification of the exchange rate windows. This compares to a depreciation of 2.5% between January 1 and June 14th (before the unification). The exchange rate weakened by 22.9% in the whole of 2022.
The disparity is now N153/$1, one of the widest since the unification of the naira on June 14th, 2023.
The naira has been under pressure in the parallel market for several weeks, as the supply of forex from official sources remains inadequate.
On July 1st, the beginning of the second half of the year, the exchange rate in the parallel market was around N772/$1.
However, a surge in demand from various segments of the economy, such as importers, foreign travellers and speculators, has triggered exchange rate volatility.
‘Scarcity major factor’
Daily Trust spoke to some forex traders who attributed the depreciation of the naira to a scarcity of supply.
They said that there were more buyers than sellers in the market and that the situation was unlikely to improve anytime soon.
A forex dealer, Nura Usman told Daily Trust that it was scarcity and lack of price control mechanism that was responsible for the astronomical rise in the exchange rate and the huge gap between the official and parallel markets.
“Even commercial banks do not have dollars, they come to us to look for it when their customers ask for it. So, this makes you wonder why CBN is not contributing its quota to the market. If the CBN releases dollars to the commercial banks at the I&E price, definitely the gap between the I&E market and our own (parallel) won’t be more than N10 and not the over N160 that we currently have,” he said.