The Naira to Dollar rate fell to N1,750 on the parallel market popularly called the ‘black market’ on Wednesday as a result of a high demand for the dollar and a widening supply gap.
The Naira traded at N1,750 to a Dollar during the midweek trading session on the black market in Lagos, driven by strong demand for the safe-haven currency.
Data from the FMDQ Exchange’s official trading platform show that the value of the Naira to dollar rate on the official market gained N11.4/$, from the N1,690/$ it was trading at on Monday to N1,678.93/$.
The Nigerian currency has fallen 70% since the middle of last year, while the US Dollar index has shown strength. The Naira will likely face more selling pressure as demand for foreign exchange rises, driven mainly by foreign tuition, fuel imports, Christmas vacations, and savers seeking to hedge against the Naira.
Persistent issues like weak oil production, high inflation, tighter monetary policies, and low foreign direct investment have also hurt Nigeria’s foreign exchange market.
This pessimistic outlook is forcing businesses with dollar-denominated debt to reduce it if they can, even though borrowing costs in Naira are significantly higher.
Naira Float
Last year, the CBN allowed the Naira to float more freely after years of being held at an artificially strong level against the dollar. While international observers welcomed the reforms, Nigeria’s inflation spiked to a three-decade high, contributing to a cost-of-living crisis.
The aim of the float was to bring the parallel market in line with the official market and strengthen the economy.
However, in the period since the float, scarcity of the dollar and unwillingness of people to sell the dollar compared to those willing to buy has exerted pressure on the naira. This has led to a relapse into the two-tier exchange market.
In a bid to bring foreign currencies held outside the banking system into the banking system, the FG announced an amnesty for foreign currency holders but that has also done little to stabilize the Naira against the Dollar.
