The Nigerian currency, the naira, continued to lose value against the US dollar in the parallel market on Thursday, dropping to N1,030 per dollar from N1,010 per dollar on Wednesday.
This represents a 2% depreciation in one day and a 10.8% depreciation since the beginning of October.
The parallel market, also known as the black market, is where foreign currencies are traded unofficially and often at higher rates than the official market. The parallel market rate is influenced by factors such as demand and supply, speculation, inflation, and government policies.
Meanwhile, the naira appreciated in the official market, known as the Investors and Exporters (I&E) window, on Thursday to N759.2 per dollar from N776.8 per dollar on Wednesday. This indicates a 2.3% appreciation in one day and a 4.4% appreciation since the beginning of October.
The I&E window is where foreign exchange transactions are carried out by investors, exporters, and other participants who need foreign currency for various purposes. The I&E window rate is determined by market forces and reflects the true value of the naira.
As a result of these divergent movements, the gap between the parallel market rate and the I&E window rate widened to N270.8 per dollar on Thursday from N233.2 per dollar on Wednesday. This implies a 16.1% increase in the gap in one day and a 49.6% increase since the beginning of October.
The widening gap between the two markets reflects the persistent scarcity of foreign exchange in the country, as well as the divergent expectations of market participants about the future direction of the naira. Some analysts have attributed the depreciation of the naira in the parallel market to panic buying by importers and speculators who fear further devaluation of the naira by the Central Bank of Nigeria (CBN).
The CBN has been struggling to maintain stability in the foreign exchange market amid dwindling external reserves, low oil prices, and weak economic growth. The CBN has devalued the naira three times since March 2020, from N306.9 per dollar to N379 per dollar in the official market. However, some analysts believe that the naira is still overvalued and needs further adjustment to reflect its true value.
The CBN has also been intervening in the foreign exchange market by supplying dollars to various segments of the market, such as banks, bureaux de change, manufacturers, and importers. However, these interventions have not been sufficient to meet the growing demand for foreign exchange in the country.
The CBN governor, Olayemi Michael Cardos, has recently assured that the CBN will continue to support the naira and ensure its stability in the foreign exchange market.
He also urged Nigerians to reduce their dependence on imported goods and services and increase their production and consumption of local goods and services. He said this would help to conserve foreign exchange and boost economic growth.