The Nigerian Naira has plunged in the unofficial foreign-exchange market exchanging at 450 Naira to a dollar, an indication the central bank may have to weaken the official rate further after last month’s devaluation.
A dollar exchanged for 450 naira in the parallel market since Friday, according to the website abokifx.com, a 14% spread from the interbank rate which weakened to 387 naira per dollar as of 4:31 p.m. local time on Monday. Twelve-month naira forwards were trading at 509 naira per dollar as of 4:30 p.m. suggesting that investors see the currency falling to around that level in a year.
The Central Bank of Nigeria moved to merge the two rates when it devalued the naira official rate to 360 per dollar from 307 naira and moved the rate at which investors and exporters could purchase the greenback to 380 naira from 366 naira on March 21.
Central Bank of Nigeria spokesman Isaac Okorafor didn’t reply to a text message seeking comment.
Retail investors are trying to diversify their portfolios by shifting to foreign currency assets, Omotola Abimbola, analyst at Chapel Hill Denham, said by phone.“For us to see to improved convergence in the rates, we need to see the central bank stepping into the foreign exchange market again to begin intervention sales,” Abimbola said.
Naira rate spread shows central bank needs to devalue further
The investors and exporters trading window, which was introduced in 2017 to attract capital inflows by offering investors a weaker and market-determined naira rate, has experienced a shortage of dollars since the central stopped its periodic interventions to sell foreign exchange in March, according to notes to clients by Stanbic IBTC and Rand Merchant Bank.
“Dollar supply remains thin as foreign investors continue to stay on the side lines amid weak fundamentals and oil price volatility,” Rand Merchant Bank said in note to clients on Thursday. Nigeria’s economy, which has been on a four-week lockdown to curb the coronavirus pandemic is predicted to contract by 3.4% this year, according to the International Monetary Fund.
“We foresee further pressure on the naira as a result of declining export revenue combined with deepening economic fallout from coronavirus,” AZA analysts Murega Mungai and Terry Karanja said in a note on Monday. “The pursuit of dollars is exacerbated by demand from foreign investors unable to repatriate funds.”
-Bloomberg