The massive crash in crude oil price and the constant pressure on the country’s foreign reserve due to the Central Bank of Nigeria’s sustained intervention in the market is having negative effect on the value of the Naira.
The severe pressure on Nigeria’s foreign exchange market has led to significant depreciation of the Naira across all the market segments.
Recall that the Naira had depreciated by N9 against the dollar in the parallel market on Wednesday, its biggest daily fall against the dollar since 2017, as the exchange rate rose sharply from N366 to N375 per dollar as at Wednesday.
At the Investors & Exporters (I&E) window, the exchange rate lost N1.58 as it rose to N368.33 per dollar from N366.75 per dollar. This is also the biggest daily depreciation that the window has witnessed since 2017 when it was introduced.
Market operators believe that this development is due to increased demand for the dollar as many traders are forecasting foreign exchange scarcity due to crash in crude oil price. This will cause a huge decline in the country’s foreign exchange inflow coupled with constant reduction in the external reserve.
According to oilprice.com, the bonny light sold for $36.49 per barrel yesterday; $37.22 per barrel on Tuesday and $36.74 per barrel on Monday. This is way below the Federal Government benchmark of $57 per dollar for the 2020 budget.
The President, Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadebe was surprised at the depreciation of the naira at the parallel market. He pointed out that the CBN had been intervening in the market by selling dollars to the BDCs. He said the apex bank planned to sell around $75 million to them on Thursday at N357.
Meanwhile, investors have been jittery over the situation in the foreign exchange market and the possible devaluation of the naira because of the crash in crude oil price.
JP Morgan on Wednesday said it expected Nigeria to devalue its currency by around 10%. It expects the exchange rate to be N400 per dollar by the end of June.
The global chief economist at Renaissance Capital, Charles Robertson, said Nigeria’s debt to revenue ratio would look worse because of the crash in oil price and this would negatively affect the country’s debt profile.