Business

Naira weakest since 2017, crashes to 495/$ in parallel market

•30% weaker than official rate as government worries

The naira at the weekend weakened
to the lowest in over three years in
the parallel market due to increased
demand for dollars amid foreigncurrency
shortages.

 

The local unit depreciated to 495 per dollar
on Friday, lowest since February 23, 2017,
widening the gap with the official rate
of 379.5 to over 30 per cent, according to
abokifx.com, a website that collates parallel
market rates in Lagos. The currency traded
in the interbank market at 389.74 as of 4:54
p.m. in Lagos

 

There is a diversion of inflows away from
official channels to the parallel market due
to the gap in rates, Murega Mungai, trading
desk manager for Aza Finance said in a
note Thursday. The market spread has created
arbitrage opportunities for recipients
of remittances such as exporters and private
individuals.

 

Pent up demand in the foreign exchange
market is not unprecedented given increase
purchase of items in preparation
for seasonal festivities, Nkemdilim Nwadialor,
analyst at Tellimer markets said. “This
has been compounded by the fact that all
through the year, we have had dollar shortage,”
she said.
This came as the a directive from the Central
Bank of Nigeria (CBN) that exporters
must register with it through an online portal
has slowed the export of cocoa and other
non-oil exports. That will likely worsen foreign-
exchange shortage in Africa’s biggest
economy and impede the government’s efforts
to diversify the economy away from
its dependence on oil, the country’s main
export.
Nigeria’s foreign exchange reserves, currently
at $35.4 billion has dropped about 3
per cent since May when it climbed to 36.6
billion, after picking up from April lows
when it was hit by fall in crude prices and
coronavirus pandemic.

The gap in the exchanges rates in the parallel
and official markets is because of decline
in revenue from oil, Nigeria’s main export,
Finance Minister Zainab Ahmed said. The
government is concerned about the spread
and is taking steps to address the issue of
scarcity, but “the progress is not as much
as we hoped,” she said in a Bloomberg TV
interview on Friday.

 

“We hope to get to an even level very soon
so the impact of the exchange rate will become
moderated,” Ahmed  said.

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