The Naira on Monday traded at 500 to the dollar at the parallel market despite the attempt by the Central Bank of Nigeria (CBN) to mop up excess liquidity from the banks last week.
Last week, the central bank sold $660 million in three-and five-month currency forwards at an auction aimed at clearing a backlog of dollar demand. But traders say that was not enough to satisfy the market.
The record drop in the value of the battered currency came on the day data from the CBN showed its foreign exchange reserves have been rising, though they remain far from their peak of $64 billion in August 2008. The reserves had climbed to a one-year high of $28.28 billion by February 2.
The Naira has been hovering near the 500 level for the past two weeks. On the official market, it has been quoted at 305.25, where it has been trading since last August.
“Despite rising FX reserves, it’s the amount of FX that is supplied that matters. The parallel market, by its nature, is particularly sensitive to demand-supply imbalances, and has a tendency to overshoot,” said Razia Khan, Head of Africa Research at Standard Chartered Bank.
“Supply of FX matters more than any other factor.”
Traders, according to Reuters, said that the central bank has been selling dollars on the official market to support the Naira, but dollar shortages were causing the Nigerian currency to weaken on the black market.
Nigeria’s foreign exchange reserves rose 1.43 percent to $28.28 billion in the week to February 2, climbing to their highest level in a year, central bank data showed on Monday.
Nigeria’s dollar reserves have gained 8.39 percent so far this year but are far off a peak of $64 billion hit August 2008.
The central bank did not provide any reason for the recent rise, which may be attributed to the rise in global oil prices.