FOREX SHORTAGES ARE TO BLAME AS THE VALUE OF THE NAIRA VS THE DOLLAR REACHES A NEW LOW.

According to research, the recent decline in the value of the naira currency to an all-time low of 735 against the dollar may have been caused by a rise in the demand for foreign money. One currency trader in Nigeria predicted that the naira will weaken much more in October, reaching 750 to the dollar.

Limited Foreign Exchange

The naira's parallel to 735 units per dollar on September 29, which caused the Nigerian currency to depreciate further against the US dollar. The latest decline in the value just days after the Central Bank of Nigeria (CBN) announced an increase in the monetary policy rate of 150 basis points (bps) (MPR).

Before the CBN raised interest rates, stated that on the foreign exchange black market, one dollar bought 720 naira. The Central Bank of Nigeria has said speculators may be to blame for the naira's decline.

However, a study in the Business Post suggests that the recent decline in the value of the naira may be related to both the dearth of foreign currency and the rise in demand for it. According to the study, the official markets over 95% increase from $119.49 million to $223.30 million, may have contributed to the naira's decline to a new all-time low.

Official Naira Exchange Rates Have Not Changed

The story cites a currency dealer from the Egbeda neighborhood of Lagos State in Nigeria to support the claims that shortages of foreign cash have also contributed to the currency's decline. Another currency dealer, Alhaji Isa, reportedly urged Nigerian citizens to shift their money to dollars because “at the way things are moving, N750/$1 next month might be the rate,” according to the currency dealer.

The Naira's volatility against the dollar in the black market worse on Wednesday by the growing demand and dearth of available dollars.

On Wednesday, currency traders at the black market in Uyo exchanged one dollar for N700.00 and sold it for between N703.00 and N705.00.

The market was dispersed today; there was a great demand but a lack of money. The banks aren't giving us the deals we desire. Customers are not receiving the amount of money they are seeking from them, which is why there is a shortage.

As a result, the naira has lost 0.4% of its value over the last three working days.

The Naira at the NAFEX window was N436.50 per $1, the lowest official market rate it has ever reached. The currency fluctuated within an intraday range of N437.50 (low), shot up to a high of N418.00, and then settled at that price.

The Naira has been fluctuating over the past few weeks and months between N419.00 and N430.00 and higher, despite persistent inflationary pressures, a rise in foreign exchange demand, and dwindling foreign reserve.

The CBN continues to set the naira's little under 440 units of the local currency for every dollar, despite several reports that claim the naira is losing ground against other currencies on the forex parallel market.

The difference between the official and black-market exchange rates consequently increased to 65%, the currency's highest difference since 2016.