Jane Doe
Thu, Aug 10, 2023 5:05 PM

Naira Weakens to Lowest Level Against Dollar as Demand for Foreign Exchange Rises

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Naira Weakens to Lowest Level Against Dollar as Demand for Foreign Exchange Rises
The naira continues to weaken against the dollar as the demand for foreign exchange rises in Nigeria. The black market rate has reached an all-time low of N917 to a dollar, while the I&E window closed at N774.78/$. Experts are concerned about the depreciation of the naira and the widening gap between the official exchange rate and the parallel market rate. The country's foreign exchange reserves have also been declining, further exacerbating the situation.

Lagos, Nigeria - The Nigerian naira has hit a new low against the dollar, trading at N917 to a dollar on the black market. The Investors' and Exporters' (I&E) window closed at N774.78/$. This development has raised concerns among analysts, who fear that the high demand for foreign exchange could lead to further depreciation of the naira.

The naira's slump in black-market trading has deepened the dollar shortage in Nigeria, even two months after the Central Bank of Nigeria (CBN) implemented a more flexible exchange rate system. The scarcity of dollars has prompted buyers to turn to the black market, widening the gap between the official exchange rate and the street price.

A banker overseeing the foreign exchange department in a Tier 1 bank revealed that the slide in the naira's value will persist until the issue of supply is adequately addressed. Many branches are currently facing a scarcity of dollars, hindering their ability to meet the demand.

Experts believe that the naira will remain under pressure as Nigerians scramble to acquire dollars for essential expenses such as tuition, medical care, and import bills. The widening gap between the official and parallel market rates is the widest since the currency's unification, driven by the excessive demand for the US dollar.

Despite the unification efforts, Nigeria's foreign exchange reserves have been declining over the past few months, reaching their lowest level in two years. The country's reserves stand at $33.918 billion as of August 9, 2023. This downward trend, coupled with the growing demand for foreign exchange, paints a worrisome picture for the Nigerian economy.

One of the factors exacerbating the situation is the influx of foreign currency from non-oil sources into the black market. Remittances, tourism, and non-oil exports have contributed significantly to this predicament.

Market participants are now expressing concerns that the high demand for foreign exchange could lead to further depreciation of the naira. The principle of willing buyer-seller foreign exchange trading, intended to achieve a market-relevant level, may have unintended short-term effects on the economy. Sellers are now seeking the highest bidder for their US dollars, undermining the objectives of the CBN.

Economist Stephen Iloba highlights the issue of fewer willing sellers and cautions that the naira's value will continue to decline until there is a drop in demand or an increase in supply. Activist and forex dealer Simon Amadi believes that Nigeria needs to shift its economic outlook to address this ongoing crisis.

Financial analyst Tola Odusola suggests that the government may have to review its foreign exchange liberalization policy due to the current market conditions. The government may soon face the challenge of a dollar exchange rate as high as N1,200.

Despite the challenges, rating agency Agusto & Co predicts that the liberalization policy and rising emigration of Nigerian professionals will push diaspora remittances to $26 billion by 2025. These remittances serve as a vital source of foreign exchange earnings, driving economic growth and development in Nigeria.

The current economic climate poses significant challenges for Nigeria's currency and overall economy. The government needs to address the supply shortage and actively seek strategies to stabilize the naira's value against the dollar.

For a country heavily reliant on imports and with a growing population, the strength of the naira is crucial for economic stability, inflation control, and overall development. A comprehensive review of foreign exchange policies, alongside efforts to attract foreign investment, will be vital in improving Nigeria's currency situation.

Source of content: OOO News 2023-08-10 News

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