The Nigerian Naira plunged to N360 against the US dollar at the parallel market on Wednesday, following a supply shortage of the greenback in the interbank market.
The local currency was traded at N354 against the US dollar on Tuesday, before supply gap in the interbank market widens the difference between the parallel market and interbank rates.
Foreign exchange dealers attributed the development to inadequate liquidity in the forex market.
While currency analysts have said until the Central Bank of Nigeria address the current shortage and devise a better solution to liquidity issue at the interbank level, this will continue.
“This is a liquidity problem, any shortage or additional supply of the greenback will definitely impact the Naira,” said Samed Olukoya, a foreign exchange analyst at Investors King Ltd. “Once addressed, the forex market should return to normalcy.”
The central bank has used intermittent intervention to prop up the Naira exchange rate at the interbank level, but with crude oil prices below $50 a barrel and militant resumed attack that has reduced production by 600,000 barrels a day. It is not clear how the Central Bank of Nigeria plan to sustain the forex market or contain parallel market from reaching N400 a dollar this year.
Currency experts had earlier predicted that the abandonment of Naira’s fix rate would attract foreign investors to offset the anticipated forex deficit, but the global uncertainties caused by the exit of the U.K from the European Union continue to cast doubt on that assumption.
“Nothing much is really happening on the supply side of the market. Liquidity issue is still there. We actually felt that foreign investors should have been coming in by now,” said Kunle Ezun, a currency analyst at Ecobank Nigeria.