In an alarming turn of events, the parallel market exchange rate has experienced a substantial decline, reaching an all-time low of N1,680 per Great Britain Pound (GBP) within a mere week. This marks a noteworthy 7% or N110 decrease compared to the N1,570 recorded at the close of trading on Friday, January 12th, signifying an unparalleled depreciation in the historical performance of the Naira.
Factors Influencing the Depreciation
Analysts attribute this sharp decline to a consistent surge in demand for dollars since the start of January. Key contributors to this heightened demand include:
1. Businesses actively seeking to restock goods or acquire raw materials, necessitating an increased demand for foreign exchange.
2. Individuals pursuing overseas studies, driven by the need for tuition payments and related educational expenses.
3. The departure of diaspora Nigerians, notably observed post-holiday season, contributing to the heightened demand for foreign currency.
4. With schools abroad reopening, international students are actively restocking foreign currency reserves for impending school fees and financial obligations.
This unprecedented depreciation raises concerns about potential economic ramifications, marking the lowest point in the Naira’s history against the British pound.
What You Should Know
Nairametrics reported that the Central Bank of Nigeria (CBN) is set to impose appropriate sanctions following a forensic review that uncovered severe infractions, widespread abuse, and substantial non-compliance with market regulations surrounding foreign exchange transactions. Hakama Sidi Ali, Acting Director of the Corporate Communications Department at the CBN, stated that the review, conducted by a renowned firm, serves as the basis for these crucial decisions. The CBN aims to cleanse the financial services sector, instill trust among market participants, and build confidence in the Nigerian economy.
Sidi Ali also emphasized the CBN’s determination to settle the legitimate foreign exchange backlog, with payment for qualified transactions already underway. The CBN has injected approximately $2 billion across various sectors, including manufacturing, aviation, and petroleum, successfully clearing the liabilities of 14 banks and initiating settlements with foreign airlines, marking a significant milestone in resolving the forex backlog.
Credit: Nariametrics