The foreign exchange market, following its reforms in June 2023, is still grappling with exchange rate crises, and the Naira has depreciated further in the parallel market, reaching N930/$1, down from N925 the previous week.
In contrast, the Investors and Exporters (I&E) window saw a week-on-week improvement in the exchange rate, rising to N758.1 from N775.6.
This disparity between the parallel market and the I&E window has led to an increasing parallel market premium, which measures the gap between these rates.
It grew from N153.41 per dollar to N171.9 per dollar, creating incentives for round-tripping and arbitrage in the foreign exchange market.
Bureau de Change operators (BDCs) have not played the expected role in stabilizing the market.
Forex scarcity persists
Despite their re-admission into the Central Bank of Nigeria’s (CBN) official trading window, they blame the Naira’s depreciation on foreign currency scarcity.
Some Nigerians have also reportedly faced difficulties withdrawing forex from their domiciliary accounts in banks.
The CBN’s decision to lift the ban on forex sales to BDCs has not significantly addressed the scarcity issue, as banks are reportedly not selling forex to BDCs.
Experts suggest that if the CBN wishes to resume such sales effectively, it should reduce the number of BDCs through regulatory-induced mergers and acquisitions, bringing the count to a manageable level of fewer than 1000.
While the CBN aimed to improve liquidity by allowing forex sales to BDCs, the current pressure on the Naira might persist, as the country’s foreign exchange reserves and net liquid position remain limited, preventing the CBN from meeting the growing FX demand and clearing the existing backlog of FX payments owed to businesses.