Naira official rate falls 26% as dollar supply drops two-thirds
The naira weakened 26% against the dollar on the official market, touching its lowest closing price on record amid an acute local shortage of the greenback in Africa’s most populous nation.
The naira closed at 993.82 to the dollar on Monday, compared with 789.94 in the previous trading day, according to FMDQ Group, a Lagos-based exchange operator that tracks the data.
Dollar liquidity at the market dropped by two-thirds from a day earlier to $88.3 million, investment bank Chapel Hill Denham said in a note on Tuesday.
“This decrease was primarily driven by the 66.8% decline in spot transactions to $77.41 million as well as a 58.9% decrease in forward transactions totaling $10.89 million,” it said.
Nigerian authorities have attributed volatility in the naira exchange rate, as well as a prolonged weakening of the unit since currency reforms in June, to inadequate dollar supply. Finance Minister Wale Edun said last week the government expects to attract $10 billion of inflows in the coming weeks to help ease liquidity constraints and clear a backlog of arrears of matured forward contracts weighing on the currency.
The lingering dollar shortage is bolstering an active parallel market, where the naira is trading at a premium, and exchanged at 1,165 per dollar as of Monday.
Although the mid-year forex reforms resulted in a devaluation of about 40%, and were expected to attract more inflows to boost companies’ access to dollars, that isn’t happening yet, according to Modupe Kadri, chief financial officer of MTN Nigeria Communications. If the government keeps its promise to attract $10 billion inflows, “that should go a long way in increasing liquidity,” he said on an investor conference call in Lagos.
