The exchange rate between the naira and dollar appears to have rallied at the black market trading at around N1450/$1 according to some sources.
Some however quoted at around N1,515 per dollar when we inquired as strong demand on the parallel market, also known as the black market continued to dictate prices and cause disparate pricing.
On cryptocurrency markets where forex is also trade unofficially, it rallied to around N1432/$1 when we checked in the afternoon.
However, Nairametrics also understands the exchange rate rallied to around N1,320/$1 during mid day trading at the official market.
The volatility continues despite analysts’ optimism that the new FX rules by the apex bank would shore up dollar supply from commercial banks and stabilise naira in the immediate terms. However, market analysts suggest it is still early days.
The Central Bank of Nigeria (CBN) had yesterday released a new circular addressing suspected cases of excessive foreign currency speculation and hoarding from Nigerian banks.
key factors contributing to recent depreciation
Market analysts attribute the recent decline to a sustained uptick in demand for the US dollar observed since the beginning of January.
- A significant portion of the increased demand stems from businesses actively replenishing inventory or procuring raw materials, leading to a greater need for foreign exchange.
- Individuals pursuing higher education overseas have also played a substantial role in driving the demand for dollars. This trend is likely linked to the necessity of tuition payments and associated educational expenses.
- The departure of Nigerians residing abroad, particularly noticeable post-holiday season, has further contributed to the heightened demand for foreign currency. The exodus of individuals from the US and other foreign jurisdictions has notably impacted the parallel market.
- As educational institutions overseas resume classes, international students are actively bolstering their foreign currency reserves to cover upcoming tuition fees and other financial obligations. Additionally, students are securing funds for discretionary spending, such as holiday allowances.
The unprecedented depreciation marks the lowest point in the naira’s history against the US dollar, raising concerns about potential economic ramifications.
Nairametrics reported that the exchange rate between the naira and dollar closed the month of January at N1,455.59 representing a whopping 37.6% depreciation in one month.
According to Nairametrics data, the exchange rate closed at the end of December 2023 at a rate of N907.1/$1.
At the black market, the exchange also depreciated going from N1215 to N1470 to the dollar representing a 17.3% depreciation month to date.
Nigerians have had to grapple with a month-long depreciation of the naira as demand continued to outpace supply across markets.
The recent fall in the official exchange rate began on December 8th 2023 when it first crossed the N1000/$1 barrier closing at N1099.5/$1. It appreciated afterward and then plunged again to N1,043 on December 28th. By January 9th, it fell it an all-time low of N1,089.51/$1 closer to the black-market rate of N1,245/$1.
What you should know
The Central Bank of Nigeria (CBN) has released a new circular addressing suspected cases of excessive foreign currency speculation and hoarding from Nigerian banks.
- The new circular introduces a set of guidelines aimed at reducing the risks associated with these practices.
- The circular, titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” highlights the CBN’s concerns over the growing trend of banks holding large foreign currency positions.
- “The Central Bank of Nigeria (CBN) has noted with concern the growth in foreign currency exposures of banks through their Net Open Position (NOP). This has created an incentive for banks to hold excess long foreign currency positions, which exposes banks to foreign exchange and other risks. Therefore, to ensure that these risks are well managed and avoid losses that could pose material systemic challenges, the CBN issues the following prudential requirements”
Note: An earlier version of this story had the title “Exchange rate depreciates to N1515/$1 at black market”. This has now been updated to reflect new information. This continues to be a developing story. Check back for updates.