Nigeria’s naira hit a record low of 600 to the dollar on the futures market for five-year settlement on Friday, traders said, after the black market eased, showing the severity of the liquidity scarcity on the spot market. The central bank weakened the currency on the derivatives market, traders said. The naira earlier fell to a low of 495 on the black market, widening the gap with the bank’s official rate of 381 set in July. It also eased on the spot market. Traders said the central bank reviewed contracts twice this week.
The naira has suffered as oil revenues declined, prompting the central bank to restrict access to the official window, causing the black market to flourish. Finance Minister Zainab Ahmed said on Friday the government was concerned about the exchange rate gap between the black and official markets, a situation caused by low revenues from oil, Nigeria’s main export.
“We have been trying to take measures to close the gap and the progress is not as much as we hope,” Ahmed told Bloomberg Television. “The reason why we have the gap is because of the decline in the revenues from the oil and gas industry.”
Oil revenues, the major source of foreign exchange for Nigeria, declined the most in about 14 quarters, pushing the economy into its second recession in four years, she said. Officials expects the recession to end by the first quarter.
“There is high demand and very low supply and the central bank has put in a process where there is queuing … we do hope that we will be able to get to an even level … so that the impact on the exchange rate will become moderated,” she said. Analysts say the central bank’s latest action on the currency raises doubts over Nigeria’s commitment to reforms, denting hopes for a shift towards a market-driven exchange rate after the bank dismissed the black-market rate.
“There is mounting evidence that the country’s FX restrictions are hurting the economy,” Capital Economics wrote in a note. Central Bank Governor Godwin Emefiele responded on Tuesday to calls for further depreciation of the naira — which has weakened by 28% this year — by saying the black-market rate should not be used to determine the naira’s value.
– Reuters