Exchange rate hits N400/$1 at the parallel market as summer holiday hikes demand

Nigeria’s exchange rate dropped to a new low of N400 to the $1 at the parallel market on Thursday. This is the lowest we have seen the naira drop on the parallel market and the lowest since the CBN floated the naira.

The exchange rate hit an all time low of about N410 to $1 back in February 2016 as Nigerians reacted negatively to a rash of new CBN policies that artificially restricted the demand for dollars.

This time around, foreign currency analysts say that the reason for the drop was due to the continued pressure on the retail end for Nigerians seeking to fund their holiday expenses abroad. This is further exacerbated by their inability to obtain forex at the official interbank window.

The CBN last week tried to inject some liquidity in the retail end by instructing commercial banks to now start selling dollars deposits from foreign remittances to BCD’s. However, the impact of this is yet to be seen in the retail end leading to the further depreciation of the naira.

The disparity between the official and black market exchange rate has now widened to as much as 21% about 4 times our preferred margin of about 5%- 7%.

Is it a bubble?

Some speculators are watching this trend and wondering if we could have a repeat of what happened in February when the exchange rate crashed from as high as N410 to under N330. However, the parallel market exchange rate has been on s steady increase from the N345 it was when the Naira was officially floated to about N400 on Thursday. Therefore, if this is indeed a bubble then it has been on for almost two months now which could mean that this price may just about stick longer than expected.

Parallel market operators opine the slide may continue throughout the summer break except we have a reverse in fortunes at the interbank market where the CBN has remained the sole seller of dollars in the market,

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