A surge in foreign exchange demand and general resource scarcity may be the reason for the naira currency’s recent depreciation to a record low of 735 against the US dollar, according to a report. One Nigerian currency dealerexpects the naira to weaken further to 750 to the dollar in October, according to
Foreign Exchange Shortage
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On September 29, the parallel market exchange rate for the Nigerian currency fell to 735 units per dollar, further depreciating against the dollar. This plunge in the naira came just days after the Central Bank of Nigeria (CBN) announced an upward revision of its monetary policy rate (MPR) by 150 basis points (bps).
As reported by Bitcoin.com News, just prior to the CBN’s rate hike, one US dollar had bought 720 naira on the parallel foreign exchange market. The Central Bank of Nigeria has in the past suggested that the naira’s decline could be related to the activities of currency speculators.
However, according to a Business Post reportthe naira’s recent plunge may be related to a shortage of foreign exchange and a surge in demand for this resource. As the report explains, the more than 95% increase in the official market demand for foreign exchange from $119.49 million to $223.3 million may have contributed to the acceleration of the naira’s decline to its lowest level in history.
Naira official exchange rate still unchanged
In support of the assertion that the shortage of foreign currency is also a factor in the currency’s depreciation, the report quotes a currency dealer in the Egbeda area of Lagos State, Nigeria. This currency dealer stated.
I have been unable to get dollars from banks and other sources.
Another dealer, Alhaji Isa, reportedly urged Nigerians to convert their savings into greenbacks.” Because if this is not done, (the parallel import exchange rate) could be 750 to the dollar next month.”
Despite numerous reports suggesting that the naira is depreciating against other currencies in the forex parallel market, the CBN continues to fix the official exchange rate for the naira at just under 440 units to the dollar. This has widened the differencebetween the official exchange rate and the parallel market exchange rate to65%, the largest currency differential since 2016.
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