- Sodiq Yusuf
The Nigerian Naira has experienced a further decline in the parallel market, with an exchange rate of N930 to the US dollar, down from N925 observed mid-last week.
This ongoing depreciation is attributed to a supply gap in the foreign exchange market, particularly in the parallel market.
However, there is a more positive picture in the Investors and Exporters (I&E) window, where the exchange rate improved from N775.6 to N758.1 week-on-week.
Despite this improvement, the growing disparity between the parallel market rate and the I&E window rate is a cause for concern. The parallel market premium, which represents the difference between these two rates, has increased from N153.41 per dollar last week to N171.9 per dollar as of yesterday.
READ ALSO: FG Moves NIMC To Ministry Of Interior
This widening gap provides significant incentives for round-tripping and arbitrage in the forex market.
One contributing factor to the current situation is the performance of Bureau de Changes (BDCs), which were reintroduced into the Central Bank of Nigeria’s official trading window to enhance independent forex supply and improve access for retail users.
However, reports suggest that BDCs are struggling to access foreign currencies due to scarcity. According to a BDC operator, the scarcity is so severe that even some Nigerians are unable to withdraw forex from their domiciliary accounts in banks.
The lifting of the ban by the CBN on forex sales to BDC operators has not yet resolved the issue, as banks are reportedly not selling to the BDCs.
Data from FMDQ indicates that the I&E window opened at N761.24 to the dollar, with a high of N807.15 and a low of N738. A total of $42.26 million was traded in foreign exchange at this window.
The Central Bank of Nigeria recently directed deposit money banks (DMBs) to refrain from utilizing gains resulting from the revaluation of the naira to pay dividends or finance operations.
Financial market analysts have proposed various measures to address the ongoing forex challenges, including the potential reduction of BDCs through mergers and acquisitions to create a more manageable number.
However, concerns persist that the current forex scarcity may not see immediate improvement, given Nigeria’s FX reserves and liquidity limitations.
In summary, the Naira’s depreciation in the parallel market underscores the challenges faced in the country’s forex market, while efforts to stabilize the situation continue.
