After Pumping $7 Billion to Clear Forex Backlogs, Naira Crashes Again in Official Market

After Pumping $7 Billion to Clear Forex Backlogs, Naira Crashes Again in Official Market

  • The naira crashed against the US dollar in the official markets by over N60
  • The fall comes after the Nigerian government, through the CBN, began clearing Forex backlogs
  • Analysts believe the naira will continue to rebound as FX interventions by CBN continue

Pascal Oparada has over a decade of experience covering Tech, Energy, Stocks, Investments, and Economy.

The naira has paused its four-day recovery at the official and parallel markets after the Central Bank of Nigeria (CBN) began to clear Forex backlogs, which are blamed for the naira crash.

Analysts believe the scarcity of Forex was responsible for the naira’s woes as importers and exporters scrambled for the few dollars available for transitions.

Naira, CBN FX backlogs
Naira losses in the official market after gaining for a few days Credit: Bloomberg/Contributor
Source: Getty Images

Naira experiences a crash at the official market

On Tuesday, November 7, 2023, the exchange rate between the naira and the dollar dropped from N869.91 to a dollar in the official market.

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The crash represents a loss of N60.89 or a 6.99% decline compared to the N809.02 it closed the week on Monday, October 6, 2023.

It also marked the second time the naira has fallen against the US greenback after CBN began clearing the Forex backlog.

The naira recorded N110 per dollar at the intraday high and N700 to a dollar at the intraday low, showing a disparity of N400.

Data from NAFEM, the official Forex window for Nigeria’s foreign exchange market, showed FX turnover at the close of the trading day was $70.92 million, a 19.08 decline compared to the day before.

Parallel market witnesses recovery

However, the naira recorded a marginal recovery in the black market, exchanging for N1,050 per dollar, while peer-to-peer traders quoted around N1,62.10 per dollar.

According to reports, the gap between the official and parallel markets is closing as Nigeria intensifies efforts to strengthen the local currency.

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Analysts show optimism for naira recovery

A Forex trader, Bolade Johnson, told that the parity may not close, but the margin will remain low so that speculators and traders will find it risky to use the alternative market.

“What we are seeing is a gradual convergence of the exchange rates markets. The wide disparity between the markets is closing up, but there is still more to be done,” Johnson said.

Johnson said unifying the forex market will be done after a while as it was not created overnight.

“As Nigeria continues its intervention in the FX market, we will see the naira rally against major currencies.”

An economist and banker with the United Bank for Africa (UBA), Tony Igwe, said what Nigeria should do is intensify its forex intervention moves.

“We have seen what that can do to the naira. Clearing the FX backlogs boosted the naira despite its impact not yet being felt in the price of goods and services,” he said:

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ABCON warns speculators

Recall that the Association of Bureau de Change Operators of Nigeria (ABCON) revealed that the CBN is set to inflict pain on black market operators through its interventions.

It cautioned dealers and speculators to be careful as the naira rallies against the US dollar and major currencies.

ABCON President, Aminu Gbadabe, said the apex bank was wielding a double-edged sword against currency speculators in Nigeria.

He said what was happening presently was that the CBN was mopping the naira via interest rate hikes and other forex interventions.

He stated that it was too risky to speculate based on the current trajectory of the naira.

The naira rallied by over 20% to trade N950 per dollar in the parallel market on Friday, November 3, 2023, from the N1,120 it sold the previous day.

CBN crashes dollar, releases $6.7 billion to banks with special instructions on forex debts

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“Naira gains more N500/$” Analysts name losers as CBN's intervention drives naira below N1,000/dollar

Earlier, reported that the volume of dollars traded in the Nigerian Foreign Exchange Market (NAFEM) window increased by 23.8% monthly to $2.23 billion in October 2023 from $1.8 billion in September, showing an increase in Forex inflows.

Data on weekly transactions in the official NAFEM showed that turnover recorded upswings across the four weeks in October from $326.44 million in the first week of October to $642.89 million in the last week but thawed to $163.04 million in the previous two trading day in October.

FMDQ data showed that the naira fell to N815.23 per dollar in the Investors and Exporters (I&E) window at the end of October 2023, from N755.27 per dollar recorded on September 29, 2023.


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