Naira has returned to its old ways at the parallel market, trading late Tuesday at N900/$1 after a show of recovery that saw it rose to N840/$1 last week.
At the beginning of Tuesday, the exchange rates hovered around N865-N870/$1; however, the subsequent decline later in the evening indicates a swift surge in demand due to ongoing supply difficulties.
The fluctuation underscores the volatility of Nigeria’s FX market, despite efforts by President Bola Tinubu-led administration to tame the tide of naira’s poor performance.
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Last week, the government, through the Nigerian National Petroleum Company Limited (NNPCL), secured an emergency $3bn loan from Afreximbank, to boost the nation’s depleted foreign reserves. Though the market reacted positively to the news, with the naira gaining over N100, its current regress indicates that the FX liquidity gap needs much more dollar inflow to fill.
On Tuesday, trading within the official Investors and Exporters (I&E) window saw the exchange rate between the naira and the dollar stabilize at N770/$1, marking a decrease from the previous day’s rate of N761.32. The highest point reached during the day was N799.9/$1, while the lowest point touched N720/$1. The day’s market activity recorded a total turnover of $122 million.
The Central Bank of Nigeria (CBN) has rolled out some measures geared toward FX policy reforms expected to boost the naira. The Acting Governor of the CBN, Folashodun Shonubi, said two weeks ago the new measures were approved by Tinubu.
“Mr. President is very concerned about some of the goings on in the foreign exchange market. One of the things we discussed is what could be done to stabilize and what could be done to improve the liquidity in the market and also the goings on in the various other markets, including the parallel market,” he said.
The measures include the introduction of an FX price verification system (PVS) portal, which is mandatory for all Form M requests, starting from August 31, 2023. The central bank also announced last week, a series of operational changes that will see the Bureau De Change back into the regulated FX framework.
Under the updated framework, the buying and selling spread maintained by BDC operators is slated to be confined within a permissible range of -2.5% to +2.5% based on the weighted average rate of the Nigerian Foreign Exchange market window from the preceding day.
Furthermore, the new regulations stipulate that BDC operators are obligated to submit mandatory reports, including daily, weekly, monthly, quarterly, and yearly renditions.
However, the performance of the naira in the parallel market on Tuesday indicates that these measures could only provide temporary relief to the forex challenge. It also confirms the takes of many analysts, who say that the only solution to Nigeria’s forex crisis is to boost FX earnings from exports.
Naira’s fallback to N900/$1 comes on the heels of an analysis by JPMorgan, which estimates that Nigeria’s foreign reserves are actually $3.7bn instead of the $30bn being presented by the CBN.