The foreign exchange market in Nigeria continues to grapple with turmoil, and recent indicators suggest that the challenges stemming from the foreign exchange reforms in June 2023 are persisting. The Naira has faced further depreciation in the parallel market, falling to N930 per US dollar, down from N925 just a week ago. However, there was a slight improvement in the Investors and Exporters (I&E) window, with the exchange rate improving to N758.1 from N775.6.
The widening gap between the parallel market rate and the I&E window rate indicates a growing parallel market premium, which reached N171.9 per dollar, up from N153.41 per dollar the previous week. This disparity has created incentives for activities like round-tripping and arbitrage in the forex market.
The re-admittance of Bureau de Changes (BDCs) into the official trading window by the Central Bank of Nigeria (CBN) has not yielded the expected results, as the operators cite a scarcity of foreign currencies as the primary reason for the Naira's continued depreciation. Some Nigerians are reportedly unable to withdraw foreign exchange from their domiciliary accounts in banks due to the scarcity.
While the CBN's decision to lift the ban on forex sales to BDCs was intended to increase liquidity in the FX market, analysts remain skeptical about its effectiveness. They point out that the CBN's foreign exchange reserves may not be sufficient to meet the growing demand, given the existing backlog of FX payments owed to businesses. Some experts suggest that reducing the number of BDCs through mergers and acquisitions could help streamline the sector and improve CBN supervision. However, the Naira's challenges persist, casting uncertainty over its stability.