Naira Hits New Low at N820/$ as Forex Supply Gap Persists
The Nigerian currency, Naira, has reached a new low against the US dollar, trading at N803.9/$ in the Investors & Exporters (I&E) window and N822/$ in the parallel market. This decline comes amid an ongoing shortage of foreign exchange supply in the country.
Financial Vanguard’s investigations revealed a 6.6% decrease in the volume of dollars traded in the I&E window, disappointing dealers who were expecting an increase in supply. The parallel market also witnessed a 5.5% depreciation, with the Naira falling to N822/$ from the previous week’s closing rate of N779/$.
Since the Central Bank of Nigeria (CBN) implemented market reforms on June 14, 2023, aiming to eliminate multiple exchange rates and introduce the ‘Willing Buyer Willing Seller’ model in the I&E window, the Naira has experienced volatility, leading to its record low last weekend.
The CBN’s measures were intended to enhance transparency, boost confidence, and attract increased forex supply. However, market operators report that the expected increase in supply has yet to materialize. Rising demand and hoarding are contributing factors to the renewed depreciation of the Naira in both the I&E window and the parallel market.
Dealers expressed their frustrations, citing difficulties in accessing dollars and limited supply. The scarcity of dollars is affecting businesses, especially transactions requiring foreign currency.
Aminu Gwadabe, President of the Association of Bureaux De Change Operators of Nigeria (ABCON), acknowledged the challenging situation and highlighted the removal of restrictions as a contributing factor. He noted that many individuals still hold assets in dollars, and significant inflows from investors have not been seen.
The scarcity of forex supply is reflected in the decline in dollar turnover in the I&E window and a decrease in the nation’s external reserves. To reverse this trend and increase forex inflows, analysts suggest that the CBN should consider additional reforms such as removing forex restrictions on certain items, incorporating Bureaux De Change (BDCs) into the I&E window, and clearing the backlog of forex demand.
It is essential for the CBN to tighten monetary conditions, eliminate forex restrictions, and introduce export-oriented policies to stimulate production and export activities in the long term. The participation of BDCs in the official market is also seen as crucial for enhancing competition, liquidity, transparency, and market stability.
The current mismatch between forex demand and supply, along with a growing backlog of unmet demand, continues to exert pressure on the Naira’s value.