Naira has fallen against the dollar by 10.6% annually since 1973
Naira has depreciated to a record low at the black market after the local currency closed trading on Thursday at N718/$1 compared to N700/$ recorded the previous day. This is according to information from Bureau De Change operators in Lagos State.
Recall that Nairametrics reported that Naira fell below the N700/$1 threshold on Wednesday, driven by a surge in the demand for forex in the country, amidst sustained scarcity. With the exchange rate now at N718 per dollar, it indicates that Naira has depreciated by N100 in just 10 days.
Bureau De Change operators cited a lack of FX and a surge in demand for the recent uncontrolled uptrend recorded in the market. Meanwhile, some bank users have complained that they have not been able to access their funds in their domiciliary accounts due to lack of liquidity.
Similarly, at the cryptocurrency P2P Exchange market, the rate has fallen to N705/$1, a 0.6% depreciation compared to N701/$1 recorded in the previous trading session. Naira has been under immense pressure in the past two weeks, falling from an average of N618 to a dollar recorded two weeks ago.
- On the flip side, the exchange rate at the official market recorded significant gain on Thursday, 28th July 2022 as Naira closed at N426.2/$1 from N430/$1 recorded in the previous trading session. Also, forex turnover in the Investors and Exporters (I&E) window increased marginally by 1.93% to stand at $129.13 million.
- The Central Bank raised the benchmark interest rate to 14% in July 2022, following a similar 150 basis points increase in May in order to curb rising inflationary pressure as well as encourage FX inflow into the economy.
- However, despite the move by the apex bank, the exchange rate is yet to moderate, with more pressure now on the country’s external reserve. Meanwhile, the Central Bank stated that the external reserve increased by $620 million in the month of June 2022 as a result of inflows from non-oil sources.
- According to the communique of the Monetary Policy Committee of the CBN, “the MPC noted that foreign exchange inflow through the RT200 FX Programme in Q1 and Q2, 2022, had increased substantially to approximately US$600 million as of June 2022.
- “Members also noted the increase in Diaspora remittances as a result of the Naira for Dollar incentive and urged the Bank not to relent in its efforts to encourage foreign exchange inflow to the economy.”
Meanwhile, Nigeria’s foreign reserve continued on its downturn with a 0.07% decline to stand at $39.25 billion on Wednesday, 27th July 2022 compared to $39.27 recorded the previous day. Notably, the external reserve has dipped $196.71 million in one week, following the recent volatility in the exchange rate markets.
Naira crash: Peter Obi urges Nigerians to stop using dollars for local transactions
Peter Obi, the presidential candidate of the Labour Party has urged the government and Nigerians to stop using foreign currencies like the US dollars for local transactions.
He disclosed this in a recently posted tweet, where he stated that Nigeria’s confidence in the national currency needed to be restored.
This comes on the heels of a massive depreciation in Nigeria’s local currency. The Naira has nosedived to a record low of N720/$ creating an astounding gap between the official rate and the black market rate.
What Peter Obi is saying
The Presidential candidate for the Labour Party stated that economic hardship and fiscal pressures have led to the plunge of the Naira. He said, “Distortions in the economy and fiscal policies have triggered instability of the Naira, The plummeting exchange rate is worrisome.”
He added that Nigeria should stop using foreign currency to pay for domestic activities and contracts. He said, “The Fiscal Managers should come up with a policy line or modality for arresting the value drift and restoring confidence in the National currency. Also, denominating domestic transactions and contracts in foreign currency should be stopped forthwith.”
The Fiscal Managers should come up with a policy line or modality for arresting the value drift and restoring confidence in the National currency. Also, denominating domestic transactions and contracts in foreign currency should be stopped forthwith. – PO.
— Peter Obi (@PeterObi) July 29, 2022
What you should know
- It is important to note that the greatest naira depreciation in history is being fueled by the CBN’s money supply growth rate. This is because the rate of inflation in an economy is one of the quantitative factors which impacts a currency’s exchange rates.
- In particular, if your economy’s inflation rate is low, you should anticipate drawing more foreign investment than comparable nations with greater inflation rates. On the other hand, if an economy has a high rate of inflation, the impact on the currency is like a double-edged sword.
- The amount of money supply in the Nigerian economy is at its highest level on record at about N48.8 trillion while currency in circulation is above N3 trillion for 8 straight months. Demand deposits, which are money held by banks on behalf of the customers are also at an all-time high of N17 trillion.
- Nigeria’s inflation rate climbed to its highest level in half a decade, and the fifth consecutive monthly rise. inflation rate in the month of June 2022, surged further to 18.6% compared to 17.71% recorded in the previous month. The last time the inflation rate in Nigeria touched the 18.6% ceiling was January 2017, when it stood at 18.72%.
- Nigeria’s foreign reserve continued on its downturn with a 0.07% decline to stand at $39.25 billion on Wednesday, 27th July 2022 compared to $39.27 recorded the previous day. Notably, the external reserve has dipped by $196.71 million in one week, following the recent volatility in the exchange rate markets.
