Exchange rate concludes a tumultuous week with an elusive bottom in sight

The exchange rate between the Nigerian naira (NGN) and the United States dollar (USD) witnessed a dramatic decline, marking one of the worst weeks in recent history for both the official Nigerian Autonomous Foreign Exchange Market (NAFEM) and the parallel market, as reported by Infostride News.

The official NAFEM closed the week with an exchange rate of N808/$1, while the black market, operating unofficially, saw rates as high as N1170/$1. This significant drop of 5.4% on the official NAFEM window is a record low at the end of a trading week in Nigeria’s exchange rate history. Notably, the last time the exchange rate closed a week above N800 was on July 14th when it settled at N803.90, according to data obtained from Infostride News.

The weakening of the naira was evident across all market segments. On October 17th, 2023, the exchange rate reached an all-time low, closing at N848.12, and at one point during the week, an “intra-day high” of N999 was recorded in the official market, reflecting the growing disparity between the official and parallel market rates.

In the parallel markets, the unofficial exchange rate quotes ranged from approximately N1,040 to N1,175/$1, with some transactions reaching as high as N1,200/$1. This represents a remarkable 10% depreciation within a single week, a trend reminiscent of the wild volatility observed around November 2022.

The widespread weakening of the naira in all markets suggests that a reversal of this trend is unlikely until there is a significant improvement in the supply of foreign exchange. Reports from Infostride News indicate that forex scarcity persists on the streets, with many traders facing limited to no supply for their trade operations.

Infostride News also gathered information suggesting that speculators may be a primary reason behind the depreciation of the naira. Many traders anticipated the impact of the removal of the ban on 43 items by the Central Bank of Nigeria. This ban on certain items had been cited by the central bank as one of the factors contributing to the significant disparity between the official and black market rates. This disparity, which initially stood at N289/$1, has since surged to a staggering N361.73/$1 by the end of the week.

Meanwhile, the total forex turnover recorded for the entire week amounted to $423.9 million, which is notably lower than the $646.6 million recorded the previous week. This decline in forex turnover further underscores the challenges facing the Nigerian forex market.

As of October 19, 2023, Nigeria’s external reserves stood at $33.3 billion. It is important to note that the external reserves have remained at this level since September 6th, 2023, indicating that the central bank has not yet injected the expected supply into the market. It is worth highlighting that when the Tinubu administration assumed office on May 29th, 2023, Nigeria’s external reserves were at $35 billion. Since then, the exchange rate at the parallel market has experienced a substantial 36% depreciation.

In conclusion, the exchange rate between the Nigerian naira and the U.S. dollar is facing a significant crisis, with rates plummeting to historic lows in both the official and parallel markets. The scarcity of forex and speculation in the market, along with the disparity between the official and black market rates, are contributing to the ongoing depreciation of the naira. These challenges must be addressed to stabilize the exchange rate and restore confidence in the Nigerian forex market.