Last week witnessed a sharp decline in the value of the Naira against the dollar, dropping by 23% due to a surge in demand for dollars in the parallel market.
This downturn, marking the Naira’s worst weekly performance since February, was fueled by a combination of factors including increased activities by banks and end-users, coupled with sluggish forex disbursement to Bureaux De Change (BDCs) by the Central Bank of Nigeria (CBN).
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Despite a timely intervention by the CBN in the official Nigeria Foreign Exchange Market (NAFEM) on Friday, leading to a temporary appreciation of the Naira in the parallel market, uncertainty looms over the currency’s future performance this week. Currency dealers and analysts attribute this uncertainty to the pace and effectiveness of CBN interventions.
Following a period of steady appreciation over two months, with the Naira climbing to N1,140 against the dollar on April 19th from N1,820 on March 21st, the currency experienced a rapid depreciation last week. Within four consecutive days, the Naira plummeted by N285 (25%) to N1,405 per dollar on April 25th.
Similar downward trends were observed in the official market, where the Naira depreciated by N169.24 (9.9%) to N1,339.23 per dollar on April 26th, compared to N1,169.99 per dollar on April 19th.
The dwindling fortunes of the Naira were further exacerbated by unethical practices fueled by the lower exchange rate in the parallel market. Banks took advantage of the rate differential, purchasing dollars at a cheaper rate in the parallel market and reselling them at higher official exchange rates to customers.
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Additionally, some forex end-users engaged in arbitrage, buying dollars in the parallel market and selling them to banks at inflated official rates.
The slow pace of dollar disbursement to BDCs by the CBN also contributed to the surge in demand for dollars in the parallel market, leading to the significant depreciation of the Naira.
In efforts to stabilize the currency, the CBN intervened in the official market on Friday, while also accelerating dollar disbursement to BDCs and intensifying enforcement activities.
Consequently, the Naira witnessed a slight appreciation in the parallel market on Friday, trading at N1300 per dollar compared to N1,405 per dollar on Thursday.
Currency dealers anticipate further appreciation of the Naira in the coming week, citing coordinated interventions by the CBN and crackdowns on illegal market activities.
However, they emphasize the need for sustained efforts to curb speculative trading and ensure liquidity in the forex market.
Furthermore, calls have been made for policy measures such as executive orders to encourage depositing foreign holdings into non-export domiciliary accounts and the creation of investment bonds for Nigerians in the Diaspora without tax charges, aimed at bolstering forex reserves and stabilizing the Naira.
