Naira to dollar falls to record low at official market
In a recent development, the Nigerian official foreign exchange market, also known as the Investors and Exporters (I&E) forex window, has recorded a historic low for the Naira. The currency has depreciated to N464.67 per dollar, marking the lowest ever recorded value.
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The weakness of the naira has been attributed to a surge in demand for the dollar by end users seeking to cover importation and travel expenses.
According to data from the FMDQ, the naira experienced a 0.14% depreciation on Wednesday which was lower than the N464/$1 recorded on Tuesday.
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On Wednesday the daily turnover of the foreign exchange market, which indicates the amount of trading at the I&E window, reached a closing value of $127.72 million.
On Wednesday, the Nigerian naira experienced a decline of N1 against the US dollar at the parallel market, which is commonly referred to as the black market. As a result, the naira was traded at N746, compared to the previous day’s rate of N745.
On Tuesday, the FX market commenced with the Nigerian naira being traded at N745 per dollar on the black market.
The currency closed at the same rate as it did on Friday, following a 1.07% decline in value over the course of two days last week.
The Naira, which had stabilised at N738 per dollar at the start of last week, experienced a depreciation to N746 per dollar on Thursday. This was due to a surge in demand for dollars by importers.
Why does the Naira continue to fall against the dollar?
There are several reasons why the Naira continues to fall against the dollar. Firstly, Nigeria is heavily reliant on oil exports, which account for the majority of its foreign exchange earnings. Due to the global decline in oil prices, Nigeria’s foreign exchange reserves have been depleted, leading to a shortage of dollars in the market.
Secondly, Nigeria’s imports far exceed its exports, resulting in a trade deficit. This means that the demand for dollars is higher than the supply, leading to an increase in its value against the Naira.
Thirdly, Nigeria’s economy has been plagued by instability and corruption, which has led to a lack of investor confidence. This has resulted in a decrease in foreign direct investment and a reduction in the inflow of dollars into the economy.
Fourthly, the COVID-19 pandemic has had a significant impact on the global economy, including Nigeria’s. The pandemic has led to a decrease in demand for oil and other commodities, further exacerbating the shortage of dollars in the market.
Lastly, the Central Bank of Nigeria has been accused of manipulating the exchange rate in favor of the government and its allies, leading to a lack of transparency and trust in the system.
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Overall, there are multiple factors contributing to the continuous fall of the Naira against the dollar, and addressing these issues will require a concerted effort from both the government and the private sector.