Signs of troubled economy have started emerging even after the official confirmation of another recession in five years with the continued depreciation of the nation’s currency, Naira, closing at N495/$ at the black market on Friday.
According to information from Abokifx – a prominent FX tracking website, at the black market where forex is traded unofficially, the Naira depreciated against the dollar to close at N495/$1 on Friday.
This represents an N8 drop when compared to the N487/$1 that it exchanged for on Wednesday, November 25.
Also, the naira crashed again to a new record low against the pounds closing at N635/£at the parallel market.
However, investigations across some black markets from Allen to Surelere and even Abuja showed that the mallams were quoting between N500/501to a dollar,
The first time the naira experienced this poor outing was last year due to conflicting monetary policy measures as well as lack of synergy between the fiscal and monetary policy measures.
The development has continued to raise unanswered questions of sources of forex by the street traders who are ever liquid.
Analysts say border closure as well as some CBN forex policies restricting access to dollars on official window, among others, may be putting more demand pressure on the black market.
However, despite the seemingly drop in speculative buying of foreign exchange, following resumption of sales of forex to Bureau De Change operators, the huge demand backlog by manufacturers and foreign investors still puts pressure and creates a volatile situation in the foreign exchange market.
However, despite the seemingly drop in speculative buying of foreign exchange, following resumption of sales of forex to Bureau De Change operators, the huge demand backlog by manufacturers and foreign investors still puts pressure and creates a volatile situation in the foreign exchange market.
The local currency had strengthened by about 7.8% within one week in September at the black market, as the CBN introduced some measures targeted at exporters and importers.
This is to boost the supply of dollars in the foreign exchange market and reduce the high demand for forex by traders.
But, CBN has sold about $1 billion to BDCs since they resumed forex sales on Monday, September 7, 2020.
Although, this was expected to inject more liquidity into the retail end of the foreign exchange market and discourage hoarding and speculation, anxiety among the operators ocassioned by what they regard as general clampdown on them by CBN may have worsened the situation.
With cautious optimism, some BDC operators may have resorted to sharp practices to make up for losses due to inactivity either due to the pandemic or detention by security agencies for investigations on the order of CBN on the allegation of round-tripping.
In spite of the development which was widely condemned by the operators and some analysts, CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds.
For instance, the sharp increase in dollar supply after the trading day of Wednesday drop, reinforces the volatility of the foreign exchange market. The supply of dollars has been on a decline for months due to low oil prices and the absence of foreign capital inflow into the country.
In fact, the exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand, and a shaky economy that has been hit by the coronavirus pandemic and recession.
For instance, the sharp increase in dollar supply after the trading day of Wednesday drop, reinforces the volatility of the foreign exchange market. The supply of dollars has been on a decline for months due to low oil prices and the absence of foreign capital inflow into the country.
In fact, the exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand, and a shaky economy that has been hit by the coronavirus pandemic and recession.
Some members of MPC at the last meeting expressed serious concerns over the increasing demand pressure in the country’s foreign exchange market, even as obligations of manufacturers to their foreign suppliers continue to increase in the face of dollar shortages.
Indeed, the nation’s investment space is relatively unattractive to investors, ocassioned by the primary market T/bill rates slipping into
negative territory (91-day: -0.01%) on the same day while inflation spiked to 14.23% in October, further
widening the negative real rate of return on investments.
It is important that robust fiscal and investment
friendly policies are put in place to attract various investment flows needed to spur economic growth.
A financial expert and Managing Director of Financial Derivatives, Bismarck Rewane had stated that
falling aggregate demand could elongate the recovery path.
Rewane further noted that economic scholars encourage increased spending during recessions to jumpstart the economy. “However, in
recent times, aggregate demand remains subdued due to higher costs of living. The increase in electricity
tariffs and PMS prices have squeezed consumer disposable income. It is of great necessity that the
government significantly supports households in a bid to fast track economic recovery,“ he said.
