The naira remained near its lows on the black market, as dwindling reserves and dollar inflows have made it difficult for the CBN to fund corporate and individual demand for the greenback.
The naira traded at 1,245 naira the greenback on the parallel market in the early hours of Wednesday, while it was quoted at 1,002.50 naira on the one-month non-deliverable forwards market on Tuesday.
CBN Governor Olayemi Cardoso, the head of the nation’s central bank, has earlier stated that he will allow market forces to set exchange rates while establishing uniform, transparent, and unambiguous regulations controlling market activity.
The high divergence between the official and black-market rates further creates a deep hole between these markets
This is because traders prefer the premium found in the black market.
The situation was made worse by weak foreign exchange liquidity, which resulted in severe fluctuations similar to those seen in the unofficial parallel market, where the naira trades with more flexibility.
The naira has already lost about four-fifths of its value and is already the worst-performing currency in Africa.
Nigeria’s FX market turnover, which reflects the volume of dollar transactions at the official market, declined by 18.90% to $111.76 million on Tuesday from $137.82 million recorded on Monday.
A low FX supply usually leads to a depreciation of the Nigerian naira against the global safe haven currency. This is because the value of fewer dollars available increases relative to the naira. This makes imports more expensive, putting upward pressure on inflation.
After the naira’s devaluation, many experts predicted that the parallel market’s activity would decline, but it now seem to be a fairly tale
The former acting head of CBN, Folashodun Shonubi, blamed the diaspora’s remittances for avoiding the nation’s traditional channel for the meager foreign exchange inflows at official channels.
He emphasized that remittances from the diaspora actually provide a portion of the funding for the illegal markets. We therefore need to be well-informed about a great deal of what is happening there. The sentiment game is off the table.
“We typically follow the literature if we don’t understand the dynamics, even though it might not be the best fit for us. “We are aware that money has arrived through those remittances, even though it isn’t reflected in the official system. They must be traveling somewhere, then. And the problem with the black market, unofficial market, parallel market, or whatever term you want to use, is that because it is unregulated, it turns into a convenient location for criminal activity. “He added.
Since the low oil prices prior to the pandemic, Africa’s most populated country has experienced severe FX shortages, which has forced foreign investors to sell their local assets and repatriate their profits in dollars.
The FG inability to clear a backlog of dollar demand estimated at about $7 billion hurt the country’s market integrity in getting the much-needed FX support from foreign partners.
The scarcity of dollars eventually makes the naira weaker because more people want to use the few dollars that are available, which raises the dollar’s value as the local currency. Furthermore, given Nigeria’s dismal economic performance, the naira is probably going to face more challenges in the upcoming year.
With a 3 percent prediction, the IMF”s forcast for 2024 is hardly any better, Yemi Cardoso, noted in his most recent statement that oil export revenue would decline in the coming year.
The CBN chief further anticipates that the country’s oil earnings will likely decrease next year due to the country’s 1.78 million barrels per day OPEC limit.
He mentioned that the recent low oil output in the country was caused by production stoppages, theft of crude oil, and divesting from large oil businesses.
The weak dollar index, which is trading near its lowest level since July because of mounting expectations of US rate reduction next year, has not helped the naira from benefiting, while major currencies gained support as European central banks held to a less dovish narrative.
