Naira Continues to Struggle as Banks' Inability to Meet Dollar Demand Worsens Depreciation
- A report states that Nigerian banks' inability to meet the surging demand heightened Naira's fall
- It stated that Naira started the month of August with a high of N789.08/$ but dipped to a low of N738.18/$1 by month-end
- It added that the Naira and other frontier market currencies face pressure due to the dollar's entrenched position in the global market
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The depreciation of the Naira witnessed in recent times was exacerbated by Nigerian banks' inability to meet the surging demand for dollars, a report has shown.
According to Nigeria's macroeconomic and market report for August 2023 by Comercio Partners, the development has forced buyers to turn to the parallel market.
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Legit had earlier reported that the Naira has continued to plunge lower in the FX market.
On Thursday, August 10, 2023, the naira fell to its lowest in history, exchanging at N930 to a dollar as demand for the dollar by importers and other users surged.
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How Naira reacted in August
The report pointed out that the month of August started with a bang as the Naira reached a high of N789.08/$1 on August 1.
It, however, plummet to a low of N738.18/$1 by August 30th.
This marked a depreciation of roughly 0.76% from the July closing rate of N756.94/$1, eventually settling at N762.71/$1 by month-end.
The report stated that the Naira faced a sharp decline, weakening to N930 to 1 dollar in the unofficial foreign exchange market known as the parallel market.
The US dollar, on its part, steadied near six-month high.
Lingering concerns about inflation in the United States and the hawkish Federal Reserve contributed to the dollar's strength, prompting investors to seek safe-haven currencies.
While the dollar remains dominant in global financial transactions, some de-dollarization efforts are occurring, but they are unlikely to happen quickly.
The investment banking firm noted that the dollar's entrenched position in global transactions and foreign exchange reserves makes it challenging to replace with another currency, despite its flaws.
As a result, the Naira and other frontier market currencies continue to face pressure amid the dollar's dominance.
Expert Comments
Uju Ogbunka, the President of the Bank Customers Association of Nigeria told Legit.ng that Nigeria is not making making so much money on income resources. He added that the country is spending so much in government expenditure which causes a negative in their position.
"I am sure you are aware of the kind of expenditure that is going on in government, where they are buying fleets of cars and all. And once there is a negative in the financial position, it takes quite a while to take it off."
"The naira is depreciating beyond everybody’s expectations and for those who were expecting that the naira would appreciate, maybe their foundations were not right because you don’t build something on top of nothing.
"Nigeria doesn’t have the reserve to support the naira as expected. In addition, if you don’t run cost according to affordability, then you run the risk of putting so much pressure on the naira."
Meanwhile, the CBN recently told banks to keep the profit they make from forex to hedge against future loss
"A dollar could jack up to N1,500”: Sanusi warns against borrowing to service debt
In an earlier report by Legit, former Emir of Kano, Muhammadu Sanusi II, said the naira would most likely hit N1,500 per dollar if the CBN considers printing more naira to solve Nigeria’s problem.
In a video address to Nigerians, the former governor of the CBN raised concerns about leaders who misuse the system.
He claimed former President Muhammadu Buhari's administration handled the economy without consulting any experts, causing Nigeria to live in deception under his watch.
Source: Legit.ng
