Naira crashes to all-time low of N375 to dollar

Nigeria’s foreign exchange market may have taken a new turn as a rare movement in exchange rate happened between Monday and yesterday with massive swing in the value of Naira in the interbank official market against relative stability in the parallel market.

At the interbank market yesterday, Vanguard learnt banks were forced to reverse their high bid rates to rescue the Naira from a massive depreciation of almost 23 per cent to all time low of N375/USD against the average N308/USD it had traded consistently for over two months.

Reuters had reported that the official trading platform, FMDQ Plc, confirmed a single trade worth USD10,000 had been made at a rate of N376.63/ USD early on Tuesday.

However, by the close of trading, it was forced back to N305 with dealers claiming the rate was false. The currency had traded within a band of N304 and N308 to one US Dollar for some months now before dropping to N310 last weekend.

But surprisingly, parallel market has remained stable with the local currency appreciating marginally against the US Dollar, closing at N465/USD against N470 last weekend. The local currency had recovered from a low of N490/USD in the parallel market in September this year.

Usually depreciation in the official interbank window is followed by a corresponding depreciation in the parallel market windows, while in many instances the parallel market depreciates even when there is stability in the interbank window. This is the first time parallel market would be stable while interbank depreciates.

Vanguard investigations revealed that uneasy calm had been the climate in the interbank market in the past two months when banks began to feel CBN was not transparent in managing demand and supply as well as placing remote controls over exchange rates.

Consequently, according to one of the foreign exchange dealers in a bank, several violations of the rules have been happening at the background, with banks trading the officially sourced foreign currency at rates far above the official interbank rate.

He explained that the situation could only be supressed for a while, adding that what happened yesterday was an unveiling of the true market situation.

He also expressed concern that the rate may be forced back to the controlled region, if it continues to trend in the direction of depreciation, which may hit N400/USD.

The development may be connected to the speculation that the latest spike in interbank rate was triggered by the purchase of USD60 million last week at N390/USD by a major bank, which in turn sold the foreign currency at parallel market rate of over N450/USD.

Though other banks have been involved in various unwholesome trades in foreign currencies at rates close to parallel market, the said transaction last week appeared too glaring, according to dealers.

However, no bank has been sanctioned by CBN for such transactions so far, a development which may have piled more pressure on the Naira, while encouraging more underground dealings.

The illicit trading in foreign currency is said to be boosting the earnings of banks who are engaged in it as spread between purchase and selling prices (profit margin) widened to over 20 per cent as against 2.5 to 3.0 per cent.