The parallel market exchange rate between the naira and dollar fell to N366/$1 on Tuesday as speculators anticipated a possible exchange rate devaluation.
A Nairametrics survey conducted revealed a depreciation of the exchange rate at the parallel market as operators asked for a premium of N6 from the N360/$1 exchanged at the Investor and Exporter window.
The week started rather gloomy after Saudi Arabia and Russia sparked a global price war for the crude sending global markets into a tailspin. Oil prices crashed by over 30% to under $30 on Sunday before recovering earlier in the week. However, it was not enough to stem the losses for global stock markets with Wallstreet recording its lowest single-day drop since 2008.
Stock market crash: As global markets roiled in losses the Nigerian stock market followed suit continuing a massive sell-off that began in the immediate past week. Nigerian stocks closed Tuesday in deep red with the All Share Index falling by 4.91%. The stock market has now lost a whopping N1 trillion since Monday and over N2 trillion since last week.
A total of 33 stocks lost during trading on Tuesday with MTN, Dangote Sugar, Stanbic IBTC topping the losers’ chart with the maximum single-day 10% loss. About 28 stocks fell to their year lows highlighting the magnitude of the losses.
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Forex Market: As stock market investors reeled, forex speculators, swooped in on an opportunity to make quick returns in anticipation of a rise in demand for the US dollars. According to one dealer who pleaded anonymity, demand for forex increased on Tuesday as Nigerians feared a possible scramble for the US dollars. “People have been calling asking for dollars but we do not have enough so the rate had to go up,” the dealer remarked.
Nairametrics research also gathers Nigerians in the diaspora are exploring the apparent surge in demand for dollars and have also increased their exchange rate for anyone looking to purchase. One seller informed Nairametrics that he sold to a BDC operator at N363/$1 and expects the rate to depreciate further as speculations increase.
Another buyer who also pleaded anonymity due to the sensitivity of the issue disclosed that he was offered dollars at an exchange rate of N366/$1 up from N360 on Friday. Parallel market operators complain of a scarcity of the dollar and believe things could worsen if speculators buy now and hoard. Activities of the commercial banks will also need to be watched closely as this is when they start hoarding an analyst told Nairametrics.
Demand for dollars: In 2019, Nigerians spent a whopping $43.9 billion visible and invincible imports combined according to data from the central bank on sectorial utilization of forex. Nigerians exchanged about $7.6 billion in the first three quarters of 2019 according to CBN data on foreign personal travel allowances.
As we approach Easter, dollar demand could rise piling pressure on prices leading to a potential disparity between the parallel market rate and the rate at the I&E window. The official exchange rate at the NAFEX window operated by the FMDQOTC shows the exchange rate trading at N366/$1 while 1-year futures quoted at N416/$1.
All eyes on the CBN: The CBN Governor Godwin Emefiele is hosting a consultative roundtable on Wednesday at the CBN Auditorium in Abuja, where he is meant to engage in discussions with policymakers and the private sector. All indications suggest he may address the global crash in oil prices and the possible effect on the exchange rate.
Godwin Emefiele is a staunch defender of the stable and government-controlled exchange rate and is expected to reconfirm he does not have plans to devalue the naira. However, this was the same reaction he had between 2015 and 2016 until he caved when the parallel market was trading for as high as N510/$1. The devaluation to N360/$1 and the creation of multiple exchange rate windows including the I&E extinguished speculators. He may well face another major debacle if the global oil market stays below $30.