Naira Drops to N850.22 per Dollar; Analysts Cite Hoarding and Speculation as Key Factors

The Nigerian naira experienced a second consecutive day of decline against the U.S. dollar, with analysts attributing the fall to hoarding and speculation in the foreign exchange market.

On Tuesday, the official exchange rate between the naira and the dollar dropped to N850.22/$1, marking a significant N54.81 loss or a 6.45% decline compared to the N795.41 it opened the week with on Monday. The intraday high reached N1099.01/$1, while the intraday low was recorded at N701.00/$1, reflecting a substantial spread of N398/$1.

Data obtained from the official Nigerian Autonomous Foreign Exchange Market (NAFEM) window revealed that forex turnover at the close of trading amounted to $143.55 million, representing a 16.47% increase compared to the previous day.

Similarly, the naira faced depreciation in the parallel forex market, where forex is sold unofficially. The exchange rate depreciated by 0.44%, quoting at N1140/$1, while peer-to-peer traders quoted it around N1126.55/$1.

One of the factors contributing to the naira’s decline is the backlog of foreign exchange forward contracts. The Central Bank of Nigeria (CBN) recently initiated efforts to clear this backlog, a move expected to alleviate pressure on the naira, benefit the business community and have a positive impact on the economy.

Nigeria has grappled with chronic dollar shortages, stemming from foreign investors exiting local assets during a period of low oil prices. These investors are yet to return, and the central bank has struggled to meet the demand for dollars, including those from foreign investors seeking to repatriate funds and airlines seeking to transfer money from ticket sales abroad.

The CBN’s decision to clear the backlog aligns with Finance Minister Wale Edun’s announcement on October 23, stating that Nigeria expected $10 billion in inflows to improve liquidity in the FX market. This move offers relief to local lenders who have faced challenges meeting customer demands due to the persistent dollar shortages in Africa’s largest economy.

How top personnel react to this

Toye Folosho, a director at the Manufacturers Association of Nigeria, welcomed the CBN’s initiative, highlighting that it would benefit the manufacturing sector by enabling manufacturers to procure raw materials and machinery. 

Gabriel Idahosa, deputy president of the Lagos Chamber of Commerce and Industry, emphasized that the CBN’s efforts not only restore confidence in the traditional market but also encourage portfolio investors, international airlines, and foreign direct investments. This development signifies a positive step towards addressing the challenges in the foreign exchange market.