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Naira Hits New Low: The Nigerian Naira has reached a record low of N820/$ due to the ongoing persistence of a forex supply gap.

  • Post category:Business

In light of the ongoing shortage of foreign exchange (forex) in Nigeria, the domestic currency, the Naira, has reached a new record low over the weekend. It traded at N803.9 to a dollar in the official Investors & Exporters (I&E) window and N822/$ in the parallel market.

Findings from Financial Vanguard reveal a 6.6 percent decrease in the volume of dollars traded in the I&E window, as dealers express disappointment that the anticipated increase in supply did not materialize.

Comparing the previous week, the parallel market experienced a 5.5 percent depreciation, with the exchange rate dropping to N822/$ from the previous closing rate of N779/$. Similarly, the I&E window saw a 3.9 percent depreciation to N803.9/$ from N776.9/$ the previous Friday.

Since the Central Bank of Nigeria (CBN) implemented market reforms on June 14th, 2023, including the elimination of multiple exchange rates and the reintroduction of the ‘Willing Buyer Willing Seller’ market model in the I&E window, the exchange rate has remained volatile with daily fluctuations until it hit a record low last weekend.

However, despite these measures aimed at increasing transparency and confidence to attract more forex supply, market operators noted that the expected increase in supply has not materialized. They attribute the renewed depreciation of the Naira in both segments of the forex market to rising demand and hoarding.

Market operators in the parallel market expressed the scarcity of dollars, limited access to foreign currency even from banks, and increasing demand hindering business transactions.

The turnover of dollars traded in the I&E window dropped by 6.6 percent ($57.06 million) in the first half of July compared to the corresponding period in June. Additionally, the nation’s external reserves decreased by $646 million or 1.9 percent in one month, ending July 13th.

To reverse this trend and achieve the expected increase in forex inflow, analysts suggest further reforms such as removing forex restrictions on certain items, incorporating Bureau De Changes (BDCs) into the I&E window, and addressing the backlog of forex demand. They also emphasize the importance of export-oriented policies, eliminating production and export constraints, and increasing participation of BDCs to enhance competition and stability in the market.

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