The exchange rate between the Nigerian Naira and the US Dollar has plummeted to unprecedented levels, reaching around N1,515/$1 in the black market, as reported by various sources. The volatility in the parallel market, coupled with disparate pricing, continues to dominate financial headlines.
According to our sources, the cryptocurrency markets, where forex is also traded unofficially, witnessed a rally to around N1432/$1 during the afternoon. However, a different scenario unfolded in the official market, where the exchange rate rallied to approximately N1,320/$1 in mid-day trading.
This stark depreciation is occurring despite analysts' optimism surrounding the new foreign exchange (FX) rules recently introduced by the Central Bank of Nigeria (CBN). The rules aimed to increase dollar supply from commercial banks and stabilize the Naira in the short term, though market analysts caution that it might be too early to gauge their effectiveness.
In response to the escalating situation, the CBN released a new circular addressing suspected cases of excessive foreign currency speculation and hoarding by Nigerian banks. Titled "Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks," the circular introduces guidelines to mitigate the risks associated with these practices.
Market analysts attribute the recent depreciation to a sustained increase in demand for the US Dollar since the beginning of January. This surge is fueled by businesses replenishing inventory and procuring raw materials, as well as individuals pursuing higher education overseas, necessitating substantial amounts of foreign exchange.
Furthermore, the departure of Nigerians residing abroad, particularly noticeable post-holiday season, has contributed to the heightened demand for foreign currency. International students are actively bolstering their reserves to cover upcoming tuition fees and other financial obligations as educational institutions overseas resume classes.
The Naira's unprecedented depreciation, marking the lowest point in its history against the US Dollar, raises concerns about potential economic ramifications. Nairametrics reported a staggering 37.6% depreciation in the exchange rate between the Naira and Dollar in just one month, closing January at N1,455.59/$1.
The official exchange rate's recent fall began on December 8th, 2023, crossing the N1000/$1 barrier and closing at N1,089.51/$1 by January 9th, closer to the black-market rate of N1,245/$1.
As Nigerians grapple with the month-long depreciation, the CBN's new circular is seen as a measure to address the growing trend of banks holding large foreign currency positions. The guidelines aim to manage risks associated with excessive foreign currency exposures, ensuring financial stability and averting potential systemic challenges.
Source: Nairametrics
