Nigeria’s exchange rate dropped to a new low of N400 to the $1 at the parallel market on Thursday. This is the lowest we have seen the naira drop on the parallel market and the lowest since the CBN floated the naira.
The exchange rate hit an all time low of about N410 to $1 back in February 2016 as Nigerians reacted negatively to a rash of new CBN policies that artificially restricted the demand for dollars.
This time around, foreign currency analysts inform Nairametrics that the reason for the drop was due to the continued pressure on the retail end for Nigerians seeking to fund their holiday expenses abroad. This is further exacerbated by their inability to obtain forex at the official interbank window.
The CBN last week tried to inject some liquidity in the retail end by instructing commercial banks to now start selling dollars deposits from foreign remittances to BCD’s. However, the impact of this is yet to be seen in the retail end leading to the further depreciation of the naira.
The disparity between the official and black market exchange rate has now widened to as much as 21% about 4 times our preferred margin of about 5%- 7%.
Is it a bubble?
Some speculators are watching this trend and wondering if we could have a repeat of what happened in February when the exchange rate crashed from as high as N410 to under N330. However, the parallel market exchange rate has been on s steady increase from the N345 it was when the Naira was officially floated to about N400 on Thursday. Therefore, if this is indeed a bubble then it has been on for almost two months now which could mean that this price may just about stick longer than expected.
Parallel market operators opine the slide may continue throughout the summer break except we have a reverse in fortunes at the interbank market where the CBN has remained the sole seller of dollars in the market,
UNDER NORMAL PREVAILING ECONOMIC CONDITIONS, COULD THE ONE NAIRA EXCHANGE FOR $400.00? I SURMISE, SOMETHING POLITICALLY IS WRONG WITH THE SYSTEM! ASSUMING THE UNFAVOURABLE CONDITION OF THE ECONOMY WITH SPECIAL REFERENCE TO THE CRUDE OIL PRICE, COULD NAIRA FALL DRASTICALLY TO THIS UNPRECEDENTED LEVEL? MY ANSWER IS CAPITAL NO! LET THE PLAYERS OF THE MISFORTUNE OF NIGERIA’S ECONOMY BE REALISTIC AND SUBJECT THEMSELVES TO THE FEAR OF GOD ALMIGHTY. NO INDIVIDUAL CAN FACE THE TREND THAT IS FACING NIGERIA’S ECONOMY, BUT JOINTLY, WE CAN MODIFY AND RECTIFY IT TO A MANAGEABLE LEVEL. MY SUBMISSION HEREWITH GOES TO THE MANAGERS OF OUR BANKING AND FINANCIAL INSTITUTIONS. THEY SHOULD LEARN TO BE PATRIOTIC BY APPLYING SOME LATITUDE OF RESPECT TO THE COUNTRY. WE ALL REALIZE THAT THINGS ARE NEGATIVELY IMPACTING ON THE ECONOMY AND IT IS HIGH TIME THEY LEARN TO ADJUST TO THE DICTATE OF THE ECONOMY. THESE INSTITUTIONS SHOULD CREATE DEPARTMENTS THAT WILL EDUCATE THEIR RESPECTIVE CUSTOMERS ABOUT THE PREVAILING ECONOMIC CONDITION OF THE COUNTRY. THAT IS TO SAY THAT NIGERIA CAN NO LONGER SUSTAIN EXPENSIVE MATERIALS AS IT — USED TO BE. THEY SHOULD LEARN TO EDUCATE THE MASSES BY TELLING THEM THE TRUTH THAT LUXURIES ARE NO LONGER POSIBLE AND THAT THE IMMEDIATE NEED TO PATRONIZE MADE IN NIGERIA GOODS SHOULD BE ENCOURAGED. OUR MANUFACTURERS TOO, SHOULD BE EDUCATED TO MANUFACTURING DURABLE AND COMPETITIVE GOODS SO AS TO ATTRACT LOCAL BUYERS AND EXPORTATION. NATIONS IN EUROPE HAVE GONE THROUGH WHAT NIGERIA IS GOING THROUGH NOW AND THEY ON THE LONG RUN SUCCEEDED. NIGERIA, AS WELL COULD SUMMOUNT THE TEMPORARY SETBACKS BY EMBARKING ON REALISTIC AND ACHIEVABLE PROJECTS. TO CALM DOWN THE DESIRE FOR FOREIGN EXCHANGE, OUR LOCAL MANUFACTURERS MUST BE UPRIGHT AND FACE THE CHALLENGES AROUND BY PRODUCING HIGH QUALITY PRODUCTS. TO SAY THE LEAST, AGRICULTURE, BY ALL MEANS, SHOULD BE ENCOURAGED. OUR YOUTHS MUST BE EQUIPED WITH MODERN AGRICULTURAL EQUIPMENTS IN ORDER TO ENCOURAGE THEM INTO FARMING. FORTUNELY, NIGERIA IS BLESSED WITH ABUNDANCE OF ARABLE LAND WHICH MUST BE EQUITABLY APPORTIONED FOR THE NEED TO WHICH THEY ARE MEANT FOR. A NATION THAT IS SELF SUFFICIENT IN FOOD PRODUCTION IS BOUND TO BE FREE OF UNDUE INFLATION. NIGERIA HAS IN PLACE SOME LAUDABLE INDUSTRIAL PROJECTS IN THE PAST BUT HAVE BEEN POLITICALLY ABANDONED! SUCH PROJECTS AS THE AJAOKUTA STEEL INDUSTRY SHOULD BE SPEEDILY COMPLETED IN ORDER TO FACILITATE THE DEVELOPMENT OF AUTOMOBILE INDUSTRIES AND OTHER ALLIED INDUSTRIES. UNDOUBTEDLY, NIGERIA NEEDS GOOD ROADS, GOOD HEALTH FACILITIES AND SOUND EDUCATION. WE ARE ON THE RIGHT PATH WITH RESPECT TO EDUCATION IF ONLY THE GOVERNMENT SHOULD CREATE AN ATMOSPHERE OF COMPETITIONS AMONG OUR TERTIARY INSTITUTIONS. CONSENTRATIONS ON SCIENCE AND TECHNOLOGY SHOULD BE OUR PRIORITY AND ENCOURAGED AND FURTHER DEVELOPED WITH SPECIAL CONCENTRATION ON FOOD PRODUCTIONS AND HEALTH FACILITIES. CONCLUSIVELY, THE FEDERAL GOVERNMENT IS INCAPABLE OF ENGAGING ON ALL THESE PROJECTGS ALONE. THE STATES, INDIVIDUALS WITH RESOURCES (A PRACTICAL EXAMPLE, DANGOTE INITIATIVES) SHOULD BE ENCOURAGED. CO-OPERATIVE SOCIETIES SHOULD BE WELL ORGANIZED. ALL THESE RESOURCES SHOULD BE TAPED IN ORDER TO ENHANCE THE ECONOMIC WELFARE OF THE NATION. ALL THINGS BEING EQUAL, THE RUSH FOR FOREX WILL SOON DIE DOWN IF ALL NIGERIANS SHOULD LEND A HELPING HAND BY REDUCING OUR LOVE FOR FOREIGN GOODS AND TASTES.