As forex scarcity worsens, the Nigerian naira has continued its decline against the US dollar, reaching an exchange rate of 876 naira per dollar in the parallel market on Sunday. Just a week before, it had been trading at 820 naira per dollar, illustrating the rapid depreciation.
The Central Bank of Nigeria’s recent unification of exchange rates in the country has contributed to the naira’s slide against the dollar. The situation is exacerbated by liquidity shortages, speculative activities, and various other challenges in the foreign exchange market.
Bureau de Change operators, who facilitate currency exchange, have noticed the volatility. According to Alhaji Sanni Abdul, a BDC operator in Lagos, the naira is currently being bought and sold at rates ranging from 850 to 876 naira per dollar, reflecting the instability in the exchange rate.
Another BDC operator, Alli Ibrahim, pointed out that prices of goods are increasing as a result of the currency depreciation. As of the previous Friday, the naira was being traded at 850 to 865 naira per dollar.
Dr. Muda Yusuf, the CEO of the Centre for the Promotion of Private Enterprise, highlighted several factors contributing to the pressure on the foreign exchange market. He pointed out a significant surge in monetary expansion in the past month, with money supply growing by an unprecedented 15% between May and June 2023. This rapid growth in money supply has likely impacted the exchange rate.
Yusuf emphasized the need for monetary authorities to investigate this unusual increase in money supply and take appropriate measures to control further expansion. The rapid growth in money supply poses a significant risk to macroeconomic stability, particularly in terms of price stability.
Over the years, there has been a considerable backlog of unmet foreign exchange demand, amounting to billions of dollars, due to liquidity challenges in the foreign exchange market. With a more liberalized forex market, the pressure from this backlog of unmet demands and other forex-related obligations has been unleashed on the investors’ and exporters’ window.
However, it is worth noting that at the Investor & Exporter forex window, there has been a slight appreciation of the naira against the dollar, with a 3.24% increase in the previous week. Data from the official trading platform of FMDQ Securities shows the naira’s value rose to 777.82 naira per dollar, up from 803.90 naira per dollar at the end of the previous week.