The pressure on the foreign exchange market seems to have continued unabated as the Naira depreciated to its weakest since February 2017 at the parallel market, which is also known as the black market.
This happened after the Central Bank of Nigeria (CBN) suspended the sales of foreign exchange to the Bureau De Change (BDC) operators.
According to data obtained from AbokiFX. Com, the Naira traded at N415 against the dollar yesterday as against the N385 per dollar it was trading at in April 2019. Also, data from both AbokiFX.com and Bloomberg currency trader shows that the Naira traded at N388.6 per dollar at the official spot market. This is the highest it has traded in 24 years.
The pressure on the foreign exchange (forex) market is occasioned by the crash in crude oil prices as a result of the trade war between Saudi Arabia and Russia and global low demand. The low demand is caused by lockdown and restrictions on businesses and households due to the coronavirus pandemic.
Following the huge drop in foreign exchange earnings due to low oil prices, the CBN devalued the exchange rate by over 4%, that is, from N365 per dollar to N380 per dollar.
However, crude oil has witnessed a further slump in prices globally, in addition to low demand and unsold cargoes of the product. This has necessitated calls by some analysts for a further devaluation of the local currency in order to give it the right value.
In a monitored report from Bloomberg, the Chief Executive Officer, Forward Marketing Communication Bureau De Change, Abubakar Mohammed, admitted that the suspension of sales of foreign exchange to BDCs helped in creating scarcity in the market. He said that speculators had been buying the dollars and keeping them, hoping to benefit when the prices get higher.
Also, an analyst with Afrinvest, Robert Omotunde, also explained that if the supply of forex to BDC operators was suspended, there would be a major scarcity as they account for about 30% of the foreign exchange transactions.
The CBN, just last year, pumped over $12 billion into the foreign exchange market to sustain the value of the naira.
The external reserves are depleting to a level where if the trend continues, the CBN might not be able to sustain its intervention in the foreign exchange market.