Nigeria faced economic uncertainty as the naira hit a record low against the dollar on Thursday. LSEG data showed a drop from 830 to 1,105 naira to the dollar before recovering slightly to 800 by day’s end.
The official exchange rate’s convergence with the parallel market rate over the past two weeks has heightened anxieties within financial circles. On the parallel market, the naira quoted at 1,135 against the dollar, deviating from the 750 to 990 naira range reported on the official market.
Despite fluctuations, a spokesperson from the central bank chose not to comment on the naira’s decline or the institution’s plans for currency stabilization, leaving markets and investors uncertain.
Traders attribute this anomalous rate to a liquidity squeeze fueled by increased demand in the official market. Olayemi Cardoso, the central bank governor, has yet to communicate the desired trading band for the naira or provide a timeline for injecting liquidity into the market, fostering a sense of uncertainty among investors.
The absence of central bank intervention on the official market since October has expedited the naira’s slide, according to traders. Last week’s recovery from a record low of 1,300 on the parallel market came after the central bank sold dollars to 14 lenders to clear outstanding currency forwards. However, some lenders are still awaiting settlement.
In the midst of economic uncertainty, the government has announced an anticipated $10 billion in foreign currency inflows, promising potential relief to market liquidity. However, the arrival date for these funds remains uncertain, adding another layer of complexity to Nigeria’s currency challenges. As the nation grapples with stabilizing its currency, the global economic landscape poses challenges, leaving stakeholders and observers watchful of the unfolding situation.
Photo (Bloomberg/Contributor Source: Getty Images )
By: Montel Kamau
Serrari Financial Analyst
16th November, 2023
