Exchange rate falls to record low of N765/$1 at black market

The naira continued its downward spiral against the dollar on Tuesday, as it hit a new year’s record low of N765/$1 at the parallel market.

This represents a 1.33% depreciation from the rate of N755 per dollar at the start of the week. The naira has lost over 3% (from N736/$1) of its value against the greenback since the beginning of the year, as the country grapples with dwindling oil revenues, rising inflation, and a weak external reserve position.

Analysts’ checks from BDC operators suggest the recent depreciation is connected to increasing demand for forex as Nigerians embark on foreign travels ahead of the summer holidays.

Some operators also indicate the demand for forex is also due to considerations ahead of a change in government next week, which many suspect could lead to further devaluation at the official market.

One operator opines that the demand for the dollar and Riyal has increased over the coming Muslim festivities next month. Many of the travelers are not able to get FX from the CBN and they rely on the black market.

Some company executives said that forex demand may have increased due to the need to pay for services and key raw materials and equipment needed for their operations.

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The disparate views suggest no one is clear about the reason why the depreciation has exacerbated this week suggesting this could just be due to the dynamics of demand and supply which is cyclical.

The naira’s woes are compounded by the persistent scarcity of foreign exchange in the official market, where the Central Bank of Nigeria (CBN) has maintained a fixed exchange rate of N461 per dollar.

The CBN has also imposed several restrictions on access to forex for various categories of importers and end-users, in a bid to conserve the scarce foreign exchange and curb speculative activities.

According to analysts, the naira’s depreciation at the parallel market is a reflection of the prevailing economic realities and the inefficiencies of the current exchange rate regime.

They argue that the CBN needs to adopt a more flexible and market-driven exchange rate policy that would allow for a convergence of rates across all segments of the forex market and enhance transparency and confidence.

They also call for more fiscal and monetary policy coordination and reforms to address the structural imbalances and vulnerabilities of the Nigerian economy, such as diversifying the revenue base, boosting productivity, improving the business environment, and attracting foreign direct investment.