The Naira has stabilised, at N775 per dollar, as demand pressure has waned amid increased supply of the greenback at the parallel market, also known as the black market.
For the past three days, the dollar was quoted at N775/$1 at the unofficial market, after depreciating to close to N1, 000/$1 (890) in the early week of November 2022. The pressure on Naira eased on Wednesday on the back of dollar supply, after the Central Bank of Nigeria (CBN) unveiled the newly redesigned banknotes.
According to analysts, prior to the unveiling of the new naira notes, a sharper depreciation of almost 30 percent on the parallel market has led to a widening of the premium between the official and parallel market rates.
The Naira/dollar exchange rate had depreciated by about 5.2 percent year-to-date to N445 per dollar currently on the Nigerian Autonomous Foreign Exchange Fixing (NAFEX) window, compared to N422/$1 at the beginning of the year.
The continued depreciation of the Naira followed increased demand for dollars as seen in rising foreign exchange utilisation. Data from the CBN shows that the total utilisation of foreign exchange by various sectors of the economy increased by 21 percent quarter-on-quarter (q/q) and 64 percent year-on-year (y/y) to $8.3 billion in the second quarter (Q2) of 2022. The increase, according to a report, was mostly attributable to a substantial rise in foreign exchange usage for invisibles, which climbed to $3.7 billion from $2.5 billion the previous quarter.
Foreign exchange inflows into the economy increased by 5.98 percent in the second quarter of 2022, but this has not reflected in naira stability as the currency has continued to depreciate at the official and parallel markets. The most recent Quarterly Statistical Bulletin from the CBN shows that total foreign exchange inflow into the Nigerian economy increased to $19.5 billion in the second quarter (Q2) of 2022 from $18.4 billion in the first quarter (Q1) 2022.
The World Bank said in June 2022 that allowing further gradual adjustment in the Investors and Exporters Foreign Exchange (IEFX) rate, where the CBN manages the price, would help eliminate misalignment and alleviate persistent FX pressures.
