Rising demand for the United States Dollar amid persistent scarcity has further widened Nigeria’s foreign exchange rate at the black market.
The Nigerian Naira depreciated by N5 from the N470 it was exchanged against the United States Dollar on Friday to N475 on Tuesday at the black market despite the Central Bank of Nigeria’s official exchange rate remaining at N379/ US$ since August 2020.
The apex bank devalued the Nigerian Naira twice this year when oil prices plunged to a record-low during the peak of the COVID-19 outbreak. The local currency was first devalued from N306/US$ to N360/US$ before it was adjusted again to N379/US$ to halt the surge in capital flight by foreign investors looking to exit the local market and also accommodate the change in the nation’s macro fundamentals.
According to Johnson Chukwu, the Group Managing Director/Chief Executive Officer, Cowry Asset Management Limited, “All the major sources of foreign exchange inflow to support the country’s forex reserves have declined.”
The drop in foreign revenue generation plunged Nigeria’s foreign reserves from $45 billion in June 2019 to $35.60 billion as of November 13, 2020. While foreign direct investment used to supplement dwindling reserves has dropped amid rising global risk and weak economic fundamentals.
These coupled with the drop in diaspora remittance, about $21 billion yearly, incapacitated central bank intervention ability across key forex windows and explained the reason for the persistent dollar scarcity.
Last week, Mr Bismarck Rewane, the MD/CEO, Financial Derivatives Company Limited, predicted that the Naira to United States Dollar exchange rate could hit N475 between November and December at the black market given the current situation.
This, he attributed to the weak oil prices, demand for the commodity and production cuts by OPEC plus to artificially support prices. He added that demand for the United States Dollar, due to reopen of airspace, economy and general activities, will surge and further hurt the central bank’s intervention prowess.