Naira drops 3.5% in parallel market as FX demand surges

The naira on Thursday, experienced a 3.5 per cent decline in valuation at the parallel market, driven by rising demand for foreign exchange (FX).

Data collated from street traders and online data collating platforms showed that the naira depreciated by N55 as the dollar was quoted at N1,580 in contrast to N1,525 recorded on Wednesday.

The currency had appreciated to N1,500/$1, marking a seven-month high in the parallel market earlier in the year before gaining 8.5 per cent to close February at N1,490/$1. This resulted in positive forecasts by market operators who stated that they expect the naira to sustain ascent across all FX segments for the month of March.

However, street traders who spoke to Daily Sun, could not categorically state why the pressure had resurfaced, but rather said businesses had begun to increase their demand for FX.

The President, Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadabe, was quoted in an online media platform, attributing the depreciation to speculative buying which has exacerbated the currency’s regression.

He added that the BDCs are constrained on availability, unfavorable offer rates, limited participating banks, lower margins and business uncertainties.

“The combination of all the above factors creates an atmosphere of loss of confidence in the framework for supply, triggering of currency substitution and an awakening of speculative activities and leading to the unfortunate current naira regression from strength to weakness.

I therefore urge the apex monetary authorities to sustain their magic wands, calibrate their intervention in the retail end of the market through the BDCs , grants approval for the importation of dollar cash to licensed operators and finally put a monitoring mechanism and framework for a transparent banks dollar sales to the BDCs”, Gwadabe said.

It will be recalled that the naira witnessed some pressure across the foreign exchange (FX) market following an increase in demand for the dollar by the end users.

At the official FX market, the naira depreciated as the dollar was quoted at N1,500.80 on Wednesday, marking 0.6 per cent or N9.13 loss, as against the previous close of N1,491.67, on the Nigerian Foreign Exchange Market (NFEM), data from the FMDQ Securities Exchange Limited, indicated.

Data from the Central Bank of Nigeria (CBN), showed that the naira also depreciated slightly to N1,505 per dollar on Wednesday compared to N1,502 on Tuesday, at the NFEM.

Authorised currency dealers quoted the dollar at the highest rate of N1,505 on Wednesday from N1,503 quoted on Tuesday.

The market recorded the lowest rate of N1,497.10 on the same day as against N1,490 on the previous day.

Speculative activities, particularly in the parallel market have created pressure on the naira as individuals and businesses seek FX for various needs, including imports and payments for services like education and healthcare.

The apex bank has implemented measures to curb speculative practices such as banning the use of foreign currency-denominated collaterals for naira loans which is expected to boost FX supply and stabilize the naira.

However, the parallel market remains volatile due to the mismatch between FX demand and supply with rates often higher than the official rates.