Following the quiet devaluation of the naira by the central bank of Nigeria,
The naira has depreciated against the dollar on Wednesday at the exchange rate market.
The naira fell to N493 per dollar at the parallel market, shading N6 from the N487/$ it exchanged on Tuesday, May 25, 2021.
The local unit had dropped N1 when compared to the N486/$1 that was recorded on Monday
The pressure on Nigeria’s currency is attributed to black market speculators who have taken advantage of the Central Bank of Nigeria’s (CBN) newly adopted exchange rate to buy up and hoard dollars.
The Naira equally depreciated against the US dollar on Tuesday at the official NAFEX window to close at N411.56 to a dollar. This represents a 0.08 per cent drop when compared to N411.25/$1 recorded on Monday, May 24, 2021.
The Central Bank of Nigeria moved towards exchange rate unification as it further adjusted the exchange rate and formally adopted the Nigeria Autonomous Foreign Exchange (NAFEX) rate as the official rate.
On May 14, 2021, the Central Bank of Nigeria removed the previous exchange rate of N379//US$ from its portal while updating it to a new version. Yesterday, the updated platform confirmed that the CBN has now adopted the Nigerian Autonomous Foreign Exchange Rate (NAFEX), which stood at N410.25/US$ as of the close of business yesterday. This development formalizes the use of NAFEX as the official exchange rate of Nigeria.
Analysts from CSL stockbrokers are of the view that the step towards foreign Exchange (FX) rates convergence is positive for further funding from multilateral bodies, as both the World Bank and the IMF have always pushed for a unified and flexible rate to avoid arbitrage opportunities in the FX market.
However, “we note that CBN still has a significant FX demand backlog yet to be cleared and will likely continue to use the FX reserves to manage rates.
“As such, the CBN will likely devalue the I&E rate by about 5.0 -7.0per cent by year-end to unlock FX liquidity, attract new Foreign Portfolio Investment (FPI) flows and curb the current account imbalances, which is projected to reach US$10.80billion (2.1% of the GDP) in 2021,” the analysts stated in a note to market participants.
Recall the 2016 economic crunch that significantly hampered the flow of foreign exchange earnings had set the tone for creating multiple exchange rate windows in 2017 as part of the CBN’s efforts to prioritize FX allocation to some sectors amid FX scarcity. While the policy has received widespread criticism, the CBN over the years had insisted that it was in the best interest of Nigerians to ration scarce FX among priority sectors in the economy.