Naira Depreciates To Lowest In Week At I&E Market, Remains Stagnant In Black Market

Naira depreciated at the Investors & Exporters window yesterday, Tuesday, picking up 50 kobo to close at N386.50 kobo to one dollar after opening with N386.86. Note that the Naira had closed the market on Monday with N386 after opening with N387.10 kobo.

Meanwhile, the black market remained stable unlike the movement in the Investors & Exporters window. The naira was stagnant at N460 to one dollar on Tuesday at the unofficial trading market. This was the same rate the Naira closed on Monday, as movement wasn't recorded.

Forex Drops At Investor and Exporters (I&E) Window

Nigeria's forex challenge continues with the drop recorded on Tuesday at the Investor and Exporters window after it shielded 88 per cent of its reserves, FMDQOTC data showed. The forex declined significantly from to $14.37 million from $122.89 million which was recorded on Monday, to further compound the forex challenges facing Nigeria.

The huge decline was on the back of an impressive rise on Monday which resulted into the $122.89 million recorded, but the reserves couldn't hold on for so long, leading to the loss of the 242% gained on Monday. In the space of one week, this is the lowest turnover Investors & Exporters window recorded.

Here's Why Nigeria's Forex Problem Will Continue

This shows the uncertainty in the forex market since the outbreak of the coronavirus in Nigeria and globally. The COVID-19 pandemic had compelled Nigeria to shut down most businesses, and forex sources were badly affected by the measure taken by Nigeria. The Airport is still shut down, so commercial and private flights are not allowed into and outside Nigeria, while trade among nations has been limited due to the virus and restriction of movements globally.

Also, the drop in oil price had also impacted the forex negatively, as demand has dropped due to shutdown of businesses and the oil price war that occurred between Russia and Saudi Arabia - both countries had flooded the market with oil, leading to a surplus of oil amidst low demand for the products. Now, the OPEC and OPEC+ are now cutting down oil production to pump oil prices up.

With the lack of forex in Nigeria, and forex sources yet to open fully, it has been difficult to meet the demand for forex which is between $1.5 billion and $5 billion. The Central Bank of Nigeria (CBN) had been selling forex to banks for applicants in need of forex to import essential products and those planning to pay school fees abroad. But the forex problem might remain until COVID-19 has been curbed and the forex sources

Unification To The Rescue For Nigeria

As of May 2020, Nigeria's foreign exchange reserves stood at $45.5 million, and the CBN Governor, Godwin Emefiele said the forex reserves is enough for Nigeria's economy, even though demand has blown through the roof, creating pressure on Naira. And in order to protect Naira, the CBN had stated that the exchange rates will be unified, meaning Nigeria will no longer run umltiple exchange rates - which are that of CBN, Investors & Exporters window (also known as NAFEX) and the black market (Bureau De Change or parallel market).

The CBN said the unification of the rates will be in line with that of NAFEX as it describes activities in the black market as illegal. The CBN warned investors to not transact in the parallel market, but rather, seek NAFEX for forex needs.