Naira Weakens Further, Hits N1,040/$1 in Parallel Market

The exchange rate between the Nigerian naira and the US dollar has plummeted to N1,040 at the parallel market as the demand for foreign exchange consistently surpasses its supply.

Forex traders have reported that the rate hovers between N1,035 and N1,045 to the dollar, indicating an escalation in scarcity.

This issue has worsened, with individuals struggling to purchase forex even through official channels.

An anonymous forex trader said, “At present, there is a shortage of dollars at the Investors and Exporters (I&E) window, and banks have halted forex sales.

“Instead, they advise customers to fund their accounts as they no longer issue letters of credit. The black market is currently the primary source of forex,” .

In stark contrast, the official exchange rate remains at N776.8/$1, illustrating the disconnect between the rates Nigerians encounter outside of official channels.

The parallel market breached the N1,000/$1 threshold in September, initially perceived by some analysts as a temporary occurrence. The government’s inability to attract forex inflows has resulted in an ever-depreciating exchange rate with continuous declines.

On peer-to-peer markets where cryptocurrencies are used for exchange, buyers and sellers have quoted around N1,040/$1. Foreign investment trading platforms like Bamboo and Trove have provided exchange rates of approximately N1,022/$1 and N1,017/$1, respectively.

The disparity between the official and parallel market rates has expanded to approximately 26%, equivalent to N265/$1. This stands in contrast to the 38.6% disparity, or around N290/$1, witnessed before the exchange rate unification. If the current official rates persist, the exchange rate would need to depreciate to N1,200/$1 to align with the 38.6% disparity.

The widening gap suggests that this scenario is becoming more plausible as surging demand and limited supply continue to erode the currency’s value.

The Central Bank of Nigeria’s half-year financial markets report reveals ongoing interventions in the foreign exchange market to mitigate demand pressures and maintain exchange rate stability.

A total of US$6,439.33 million was sold in the foreign exchange market, comprising spot sales of US$1,557.47 million and forward sales of US$4,881.86 million.

The spot sales included US$612.41 million at the interbank Secondary Market Intervention Sales (SMIS) window, US$455.31 million for Small and Medium Enterprises (SMEs), US$441.75 million for invisibles, and US$48.00 million at the I&E window, with the central bank purchasing a total of US$655.53 million in the FX market.

October 12, 2023