Nigeria’s Naira weakened to a four-year low in the parallel market after the Central Bank of Nigeria (CBN) efforts to persuade banks to sell more dollars to customers failed to bridge the widening gap between the official and street rates.
As of Wednesday, black market dealers were offering the naira at 502 per dollar from 500 last week, according to abokifx.com.
The current rate is the weakest since February 2017. It widens the spread between the official and the parallel market rate to 22%, when compared with the spot rate of 411.13 naira a dollar as of 1.55 p.m. in Lagos.
Naira’s weakened current rate did not happen in isolation.
Nigeria’s inflation rate on Tuesday dropped further for the second consecutive month to stand at 17.93% in May 2021 from 18.12% recorded in April 2021, according to the Consumer Price Index report released by the National Bureau of Statistics (NBS).
According to the report, the consumer price index, (CPI) which measures the inflation rate increased by 17.93% (year-on-year) in May 2021. This is 0.19% points lower than the rate recorded in April 2021 (18.12%).
The closely watched index dropped from 22.72% recorded in April 2021 to 22.28% in May 2021, indicating the second consecutive decline in the food index.
On a month-on-month basis, the food sub-index increased by 1.05% in May 2021, up by 0.06% points from 0.99% recorded in April 2021.
Since March last year, the Nigeria economy has led to the devaluation of Naira thrice as lower oil income, which accounts for about 90% of dollar earnings put pressure on external reserves.
Consequently, many Nigerians are switching their naira savings into dollars fearing further devaluation. Goldman Sachs Group Inc. forecasts the naira could weaken to between 440 to 460 a dollar in the short term.
CBN Governor Godwin Emefiele last week met with chief executives of commercial banks and the lenders agreed to increase dollar supply and operate special accounts to meet the requirements of business and travelers, according to Osita Nwanisobi, spokesman for the central bank.
The central bank aims to use lenders to make more foreign currency available to buyers, at around the official rate of between 410 naira to 412 naira to the dollar to reduce pressure on the streets where rates are crashing from excess demand.
“Dollar demand is high; people are buying for storage,” Abubakar Mohammed, chief executive officer of Forward Marketing Communications bureau de change, said by phone from Lagos, the nation’s commercial hub.“There is no effect yet from any increased sale by the banks.”
The widening gap between the official and parallel rates creates arbitrage opportunities, which the central bank says it’s monitoring closely. The central bank wants customers to report any breach to the regulator, Nwanisobi said.
“The CBN shall continue to monitor market developments and is committed to ensuring an efficient foreign exchange market for all legitimate users,” Nwanisobi said.
World Bank on Tuesday said surging inflation is undermining the recovery of the Nigerian economy, pushing 7 million Nigerians into poverty and encouraging criminality as rising prices deplete already limited incomes.
The World on Tuesday projected Nigeria’s economic growth of 1.8% this year, compared with a previous estimate of 1.2%. But it warned in its Nigeria Development Update report that without deep reforms, the economy will continue to grow slower than the pace of population expansion of about 2.6% a year.