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Naira Official Rate Sinks to Near 1,000 on Scramble for Dollars

Naira Official Rate Sinks to Near 1,000 on Scramble for Dollars
A customer exchanges Nigerian 1000 Naira banknotes for US dollar banknotes with a street currency dealer at a market in Lagos, Nigeria, on Monday, Sept. 25, 2023. The Nigerian naira extended its slide and hurtled toward the 1000-per-dollar mark in street trading, as the central bank held back from supplying dollars to a panic-stricken market.

The naira slid to the brink of 1,000 per dollar in a fresh low in the official market thanks to a combination of central bank tolerance for a weakening currency and insatiable demand for the greenback.

The currency was pushed to its latest record a week after the central bank ended curbs on using dollars to buy dozens of imported items, while this time of year typically sees Nigerians making payments for tuition at foreign schools and universities, also adding to demand.

Traders exchanged the naira for the dollar in a range of 701 to 999 in transactions booked Thursday in the official market, Lagos-based investment bank Chapel Hill Denham said in a note on Friday.

The move was echoed in the parallel market, where the naira sank to 1,170 for a dollar on Friday from Thursday’s record 1,145, according to Abubakar Mohammed, chief executive officer of Forward Marketing Bureau de Change Ltd., who compiles the data. Nigerians unable to purchase hard currency at the official rate due to shortages are forced to buy it from street dealers at a premium.

The central bank eased foreign exchange controls in mid-June — prompting the official rate to plunge more than 40% over the past four months — as part of economic reforms overseen by President Bola Tinubu. Authorities this month scrapped restrictions on buying foreign currency required to import 43 items including rice, vegetables and chicken, a move that’s worsened the dollar shortage, according to CSL Stockbrokers.

Read more: Nigeria Allows Naira to Weaken Most in Four Months to Record

“A combination of the demand arising from the lifting of the foreign exchange ban on the 43 items and increased demand for FX for school fees at the start of the new school year have increased pressure at both the official and the parallel markets,” Gloria Fadipe, head of research at CSL in Lagos, said in a note on Friday.

Despite Tinubu’s reforms, foreign investors remain largely absent from Nigerian markets, discouraged by the shortage of dollars which makes it difficult for them to repatriate earnings.

“Many foreign investors have their eyes fixed on the exchange rate and are unlikely to return to the market if there are no feasible plans to increase FX supply,” Fadipe said.

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