The Nigerian naira has fallen to a record low of 465 per dollar on the official market, according to Refinitiv data released on Monday. This comes as traders anticipate the outcome of Friday’s central bank foreign exchange auction.
The naira, which is known to trade within a particular range on the official market, has been experiencing successive lows lately, owing to dollar scarcity, coupled with the central bank’s efforts to manage a backlog demand for foreign exchange.
Effects of Dollar Scarcity on the Nigerian Naira
Nigeria’s economy is heavily reliant on oil exports, and as oil prices continue to fluctuate globally, the country’s foreign exchange earnings continue to decline. This has resulted in a shortage of dollars in the country, which is the most widely used currency for international transactions.
The naira, which has been pegged by the Central Bank of Nigeria at 410.25 to the dollar on the official market since July 2021, has come under intense pressure due to this scarcity. Furthermore, the central bank’s adjustment to manage a backlog of demand for foreign exchange has further compounded the issue.
Implications of Naira’s Record Low Against Dollar
The decline in the naira’s value against the dollar has significant implications for the Nigerian economy. First, it could lead to an increase in the price of imported goods, as businesses and individuals will have to spend more naira to purchase dollars. This will also lead to an increase in inflation.
Second, the declining value of the naira could lead to a decline in foreign investment in Nigeria. Investors are more likely to invest in countries with stable currencies, and a rapidly declining naira could signal instability in the Nigerian economy.
Third, the record low of the naira against the dollar could lead to capital flight. Investors may choose to withdraw their funds from Nigeria and invest in more stable currencies, leading to a further decline in the value of the naira.
Central Bank’s Forex Auction Results
The outcome of Friday’s central bank foreign exchange auction is highly anticipated as it is expected to provide some insight into the bank’s plans to address the shortage of dollars in the country. The central bank is expected to release a new foreign exchange policy that could potentially ease the pressure on the naira.
However, some experts are skeptical about the impact of the new policy. The central bank has consistently used policies such as banning certain imported goods and restricting access to foreign exchange to manage the backlog of demand for foreign exchange. These policies have not been very effective in the past, and many experts are not optimistic about the potential impact of the new policy.
Conclusion
The Nigerian naira’s record low against the dollar on the official market has significant implications for the Nigerian economy. It could lead to an increase in the price of imported goods, a decline in foreign investment, and potential capital flight. The outcome of Friday’s central bank foreign exchange auction is highly anticipated as it could provide some insight into the bank’s plans to address the dollar scarcity issue. However, many experts are skeptical about the potential impact of the new policy.
