In a concerning development, the Nigerian naira is facing heightened vulnerability due to a growing disparity between official and parallel market exchange rates, indicating the government’s struggle to stabilize the currency. Fitch Ratings Inc. has raised alarms, suggesting the possibility of further depreciation.
As of Wednesday, the naira was quoted at 1002 per dollar in the parallel market, a significant gap from the 745.19 naira/dollar rate recorded in the official window, reported by FMDQ, a Lagos-based currency trading platform. This glaring divide has raised concerns about the currency’s stability.
Over the past two weeks, the naira has witnessed a notable weakening in street trading, largely attributed to the central bank’s decision to withhold the supply of dollars in the official market, where the exchange rate has been volatile. Notably, non-deliverable contracts for the naira, set for three months ahead, reached a record 821.38 per dollar on Wednesday.
Nigeria’s newly appointed central bank Governor, Olayemi Cardoso, who received confirmation from lawmakers just last week, is yet to signal his policy direction. The growing gap between official and parallel rates underscores the challenges in maintaining exchange-rate liberalization and raises concerns about the potential for further devaluation, according to Fitch Ratings.
Nigeria had allowed a 40% devaluation of its currency against the dollar in June as part of broader reforms aimed at attracting foreign investment to rejuvenate its struggling economy. These measures initially narrowed the gap between official and parallel market rates but began to widen again in August due to insufficient official dollar supply, as highlighted by Fitch Ratings.
Before embarking on currency reforms, the gap between official and parallel market rates had reached as high as 70%, underlining the complexities of Nigeria’s currency challenges.
