In freefall
The naira experienced further depreciation against the US dollar at the unofficial market, reaching ₦1,030 per $1 in Abuja’s Zone 4 market…
The naira experienced further depreciation against the US dollar at the unofficial market, reaching ₦1,030 per $1 in Abuja’s Zone 4 market. Forex traders in Lagos noted quotes for inflows ranging from ₦1,035 to ₦1,045 per dollar, suggesting increased scarcity. Meanwhile, last week, the Central Bank of Nigeria lifted the foreign exchange restrictions on 43 items to enhance liquidity in the Nigerian Foreign Exchange Market and decrease interventions as liquidity improves. Importers of the 43 items can now access forex from official sources.
The good news for importers is they can source dollars from official sources — if they can find it there, while the bad news for local producers is they are back to officially contending with foreign goods. This might impact local prices. Prices may fall locally to some extent, but it will not be so much, given that the currency has devalued by almost 40%. The currency devaluation situation is holding Nigeria’s economy in a chokehold, and the government will try its best to improve liquidity in the market. Nigeria is seeking a World Bank loan, but it is unclear how long this will keep the market afloat. Crude oil production is improving, which should increase Nigeria’s foreign exchange reserves, but a significant portion of this will be used to import petroleum products. An asset sale is also a possibility. When writing this editorial late on 19 October, the exchange rate stood at ₦1,138 to the dollar. The key driver is the unavailability of liquidity in the official FX market to meet the demand that has moved there after the unbanning of the 45 restricted items. Rather than reinstate the ban, the CBN must face and tackle this liquidity crisis headlong and meet the demand to engender confidence for liquidity to come from non-CBN sources.