At the backdrop of sustained supply gap in Nigeria’s foreign exchange (forex) market, the local currency, Naira, has hit a new low at the weekend, trading N803.9 to a dollar in the Investors & Exporters (I&E) window which is the official forex market and N822/$ in the parallel market.
Financial Vanguard’s findings indicated a 6.6 per cent decline in volume of dollars traded in the I&E window as dealers said they were disappointed that the increase in supply they expected last week did not materialize.
A week-on-week trend in the parallel market shows a 5.5 percent depreciation to N822/$ as against N779/$ closing rate previous week.
In the I&E window, the local currency depreciated 3.9 percent W-o-W to N803.9/$ from N776.9/$ the previous Friday.
Financial Vanguard currency monitor shows that after the initial massive depreciation on June 14th, 2023 when the Central Bank of Nigeria, CBN, introduced reforms in the market, exchange rate had remained volatile with daily fluctuations until the record low was hit last weekend.
The reform majorly eliminated multiple exchange rates and reintroduced the ‘Willing Buyer Willing Seller’ market model in the I&E window.
Since the new measures were introduced, the Naira has depreciated cumulatively in the I&E window and parallel market by 70 per cent (N321.23) and 7.0 per cent (N58) respectively.
Meanwhile last week’s closing rate also indicated that the parallel market margin that narrowed to almost elimination following the new policy has started widening.
While the measures announced by CBN was aimed at increasing transparency and boosting confidence in order to attract increased forex supply, forex market operators who spoke to Financial Vanguard said the expected increase in supply is yet to materialize, adding that this, coupled with rising demand, and hoarding, are the factors driving the renewed depreciation of the naira in both segments of the forex market.
Speaking to Financial Vanguard, Mr. Ahmed Danjuma, a parallel market operator in Lagos Island, said: “I bought a dollar for N810 and sold for N819 and N820.
“People are demanding for the dollar. It is not easy to get dollars from the bank because it is very scarce.
“When you have access to dollars the way buyers demand for the currency is like when you take food to the prison.
“The supply is very low. Even Bureau De Changes have little access to the foreign currency.”
Similarly, Mr. Umoru Mohammed, a parallel market operator at Ikotun area of Lagos, said: “Dollar was very scarce today (last Friday) as we could hardly have access to it even from the banks.
“Every day the demand for dollars increases but the supply is very little. This is really hindering business especially for transactions requiring dollars.”
President, Association of Bureaux De Change Operators of Nigeria, ABCON, Aminu Gwadabe, in a chat with Financial Vanguard on the situation, stated: “The situation is tough, it even traded at N822 in some segments today (last Friday).
“You know now the restrictions have been removed, there is also competition and surge in demand. Most people are still holding assets in dollars, and we have not seen significant inflows even from the side of the investors.
Reflecting the paucity of forex supply amidst rising demand, the volume of dollars traded (turnover) in the I&E window fell by 6.6 per cent or $57.06 million to $807.92 million in the first half of July, from $864.98 million in the corresponding period in June.
Following the same trend, the nation’s external reserves fell by $646 million or 1.9% in one month ending July 13th. Data from the CBN showed that the reserves fell to $34.047 billion on July 13th, from $34.693 billion on June 13th.
To reverse this trend and achieve the expected increased forex inflow, analysts said the CBN must introduce further reforms including removing forex restriction on 43 items and incorporating BDCs into the I&E window as well as clearing the forex demand backlog.
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