Naira has lost pace against the US dollar at the parallel market, falling to as low as N560/$1 from N545/$1 that it had maintained in almost two weeks.
This is according to information obtained from BDC operators trading at the black market in Lagos and Abuja who spoke to Nairametrics.
Following the recent surge in forex liquidity at the official window, the local currency had jumped by over 600 basis points to N535/$1 at the black market earlier in the month. However, it has begun to trend downwards, despite significant intervention at the official market.
In the same manner, Nigeria’s foreign reserve has continued to record marginal decline on a daily basis, following the successful $4 billion Eurobond issue by the federal government in September.
The influx, which pushed the nation’s reserve above $41 billion had provided additional firepower to intervene in the foreign exchange market. Meanwhile, the recent decline in the reserve level can be attributed to interventions by the CBN in the official market.
While the recent downturn at the black market has been attributed to normal market volatility by BDC operators, we cannot totally take away the effect of the bearish trades at the global crude oil market, especially as Nigeria still relies heavily on crude proceeds for its forex earnings. Crude oil prices have dropped below $80 per barrel, following various bearish sentiments at the market.
Also, the apex bank has upped the amount of greenbacks it sells to overseas investors to clear a backlog of dollar demand that has built up since crude oil prices fell last year, during the Covid-19 pandemic.
What they are saying
According to Awolu, a BDC operator in Lagos, the fall in the exchange rate is normal considering that the rate is never stable at the parallel market.
“Dollar is never stable at the black market, so it just normal for it go up and down, depending on demand,” he said.
Dumebi Udegbunam, a Fixed Income trader at United Bank for Africa (UBA) told Nairametrics that the current fall was expected and the structure of Nigeria’s economy was to blame.
“The current depreciation is because we are a mono economic country, relying heavily on the activities of the oil market. We’ve noticed a trend or a strong relationship between oil prices and our currency over the years. When the price of oil rises, the naira rises; when it falls, the naira falls, which is what is currently happening,” Udegbunam said.
He also stated that a more concrete solution to the nation’s FX crises lies in a gradual economic transformation from a mono-economy (an economy heavily reliant on oil) to a diversified one.