Naira Continues Further Decline
The naira depreciated against the dollar across the official and parallel markets yesterday with many pundits predicting further decline of the national currency.
At the official Investors and Exporters (I & E) Window, naira declined by 2.0 per cent to N393.25 per dollar, dropping from previous position of N385.50 per dollar. Most participants at the I & E window maintained bids between N382.00 and N394.83 per dollar.
At the parallel market, naira depreciated by 0.8 per cent to N487.00 per dollar.
Senior Research Analyst, FXTM, Lukman Otunuga said the naira was poised to decline further as the Central Bank of Nigeria (CBN) has limited capacity to sustain its restrictive foreign exchange (forex) management.
“Although the Central Bank of Nigeria has devalued the Naira by 20 per cent in 2020 in an effort to unify its exchange rates, the naira could be poised to decline further as falling reserves complicate the Central Bank of Nigeria’s (CBN) efforts in defending the local currency,” Otunuga said.
He said Nigeria’s economic picture remains clouded by external and domestic risks noting that while dollar shortages continue to punish the private sector, rising inflationary pressures amid border closures and COVID-19 related disruptions have hit consumers.
He explained the negative impact of the decline in crude oil price and production on the Nigerian economy, pointing out that while crude oil contributes less than 10 per cent of the Gross Domestic Product (GDP), it accounts for some 90 per cent of foreign exchange earnings and half of government revenues.
According to him, Nigerian economic situation was compounded by its dependence on oil revenue. As oil production fell to 1.67 million barrels a day amid OPEC supply cuts and prices struggled to break away from the sticky $40 level, export earnings evaporated.
“Essentially, the collapse in oil prices in the wake of the pandemic has drained government coffers,” Otunuga said.
He noted that the current rate at the parallel markets was the weakest level in more than six weeks as CBN’s intervention in the official window failed to meet demand.