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Home Opinions Blurb

We Think This Explains Why The The Naira Is Sinking Against The Dollar

Nairametrics by Nairametrics
July 15, 2016
in Blurb, Currencies
We Think This Explains Why The  The Naira Is Sinking Against The Dollar
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The Exchange rate at the parallel market has nose-dived in the last few days with the Naira now exchanging for as high as N360 to $1. This is a remarkable turn of events following the much highlighted upsides of the new flexible exchange rate policy.

Most analysts including Nairametrics had opined that the new exchange rate policy would help tighten the disparity between the black market rates (which is are mostly used by Nigerians) and interbank rates which is the official benchmark rate for the Naira.  Unfortunately this has not happened as the gap has widened to as much as N76 or 26.7% in the last one month.

We sought to find out why the disparity is widening and the information we have suggest that there as been a surge in demand for the dollars from Nigerians looking to travel abroad for the summer holidays. A lot of Nigerians have been left frustrated by their inability to obtain forex from the official interbank market often waiting in line for weeks just to get $5,000. The result is a demand pressure in the only market that they know thus explaining the reason for the depreciation of the Naira.

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Ironically the interbank market remains deceptively low at under N285 with the CBN remaining the sole supplier of forex for that market. The Apex bank has been accused of possibly rigging the interbank market as it has controlled the supply and possibly demand leaving corporates who have dollars to sell to continue to rely on the black market for their sale rather than the official interbank market.

It is likely that the exchange rate could cross N360 by the weekend and might also hit N370 over the course of the month. Nigerians are expected to travel despite the tough economic crisis considering that most people have short-term visas that might be expiring this year. There is also the fear of an impending American election and the fear of the outcome of Brexit on immigration policies. Rather than have their visas unused, Nigerians will rather take the plunge by buying tickets at exorbitant prices and cutting down their travel expenses rather than not traveling at all.

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