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The exchange rate between the Nigerian naira and the US dollar plummeted to an all-time low of N803/$1 at the investor and exporter (I&E) window on Friday, July 15, 2023.
This marks the first time the exchange rate has crossed the N800/$1 threshold since Nigeria adopted the managed float exchange rate system. However, it should be noted that the I&E window rate differs from the parallel market rate.
The closing rate of N803/$1 represents a significant 7.3% decline from the beginning of the week when it closed at N744/$1. Earlier in the week, concerns were raised as the exchange rate closed at N776/$1.
Data from the Financial Markets Dealers Quotations (FMDQ) revealed that the exchange rate depreciated by 7.72% at the I&E window, dropping from the previous closing rate of N746.28 on Thursday, July 13, 2023.
Furthermore, the forex turnover at the I&E window experienced a sharp decline of 46.33% day-on-day, with only $46.9 million traded. This represents the lowest point since May 2nd, 2023.
Intra-day trading at the I&E window saw the exchange rate reach a record high of N829/$1, surpassing even the parallel market rate. The intra-day low, however, stood at N689/$1. These figures represent the lowest intra-day rates observed since the revised I&E window was introduced.
Meanwhile, at the parallel market, the exchange rate also witnessed a similar decline, falling to N815/$1, according to recent research.
In addition to the US dollar, rates for other currencies like the Euro and the British Pound also experienced a decline, trading as low as N885/$1 and N1050/$1, respectively.
Amidst these developments, Nigeria’s foreign exchange reserves stood at $34 billion as of July 11th, 2023.
Bureau de Change (BDC) operators, who play a significant role in the forex market, expressed their concern about being shut out of the market. They advocate for increased participation and involvement in the foreign exchange market to ensure the success of the new exchange rate policy implemented by the Central Bank of Nigeria (CBN). They emphasize the importance of their inclusion in the I&E window, highlighting that it was designed to operate with the participation of banks, the CBN, and the BDCs.
The challenges faced in the forex market, such as limited supply and increasing demand, coupled with other economic factors like high inflation rates and low interest rates, contribute to the volatility and instability of the exchange rate.
As the market awaits the Central Bank of Nigeria’s response to address these issues, further insights may be provided during the next Monetary Policy Committee (MPC) meeting scheduled for July 17th and 18th.
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