The naira Monday fell by 1.09 per cent to N460 on the parallel market. The naira decline followed President Muhammadu Buhari directive to the Central Bank of Nigeria (CBN) to stop dollar sales for food and fertiliser imports. On the official market supported by the CBN, the naira traded at N381 to the dollar, while it was quoted at N385.83 naira on the spot market on Monday.
President Buhari on Thursday directed the CBN to stop selling foreign exchange for those imports, similar to an order issued last year. Nigeria faces its worst economic crisis in four decades triggered by an oil price crash induced by the novel coronavirus pandemic. The crisis has slashed government revenues, weakened the currency and created large financing gap for the economy.
A trader attributed the high dollar demand observed in the parallel market to the activities of importers who have to make payments to bring in goods for end of year sales. The naira had firmed sharply two weeks ago on the parallel market after the CBN resumed dollar sales to individuals and investors to try to clear demand.
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But sales have not being enough, traders say, with pressure piling up on the currency. Nigeria has spent 16.6 per cent of its dollar reserve from last year to $35.77 billion. Dollar liquidity dried up on the spot market after foreign investors dumped Nigerian assets following the oil price crash. However, CBN’s forex sales has also been inadequate.
Volumes on the spot market, widely quoted by foreign investors and imports, declined from a peak of $1.3 billion in February to a low of $3.9 million last month. “It doesn’t help that some … pronouncement … will likely send more demand to (black) market,” one trader said. These developments put more pressure on the parallel market rates, particularly in the midst of very little supply.”
