Nigeria’s naira trades at historic low on official market
On Tuesday, Nigeria's official market witnessed a historic low for the naira against the dollar in sparse trading, exhibiting significant fluctuations reminiscent of levels observed in the unofficial parallel market where the currency trades freely.
During mid-day trading, LSEG data revealed that the naira depreciated to a record low of N1,248 against the dollar, starting the day at N927. However, it later rebounded to N845. Governor Olayemi Cardoso of the Central Bank of Nigeria has emphasized the commitment to allowing market forces to determine exchange rates. This approach is coupled with the establishment of clear, transparent, and unified rules governing market operations.
The combination of these statements and persistent dollar shortages in the official market has led the naira's official exchange rate to trend closer to levels observed in the parallel market. On the unofficial parallel market, the currency was traded at approximately N1,225 on Tuesday, while the one-month non-deliverable forwards market quoted it at N1,002.50.
Key Takeaways
Nigeria, Africa's largest economy, has been grappling with chronic dollar shortages on the official market, which has experienced declining trading volumes. As a result, the naira has depreciated to a record low against the dollar, with a premium observed over the official exchange rate in street trading. The naira's weakening on the parallel market can be attributed to speculation and the redirection of excess demand into the informal market. This has further widened the gap with the official market, where trading restrictions on the currency were lifted in June. The central bank's recent measures, including occasional interventions and the lifting of restrictions on 43 items, are seen as "market-friendly steps" aimed at unifying exchange rates and relieving pressure on the naira in the parallel market, where importers of these previously restricted items can now access dollars more easily.
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