Naira Plummets as BDC Operators Set Dollar Rate Above N1,400 Following CBN Decision
Bureau De Change (BDC) operators in Nigeria have significantly raised the exchange rate for the United States dollar, pushing it above the N1,400 threshold in the parallel market. This sharp increase comes in the wake of a recent decision by the Central Bank of Nigeria (CBN) to mop up dollars from the local currency market.
Parallel Market Rates Surge Amid Dollar Scarcity
Checks across key currency trading hubs in Lagos reveal that the dollar is now being sold at N1,428, a notable jump from the previous rate of N1,335 recorded just days ago. This represents a depreciation of N93 for the naira in the black market within a short period.
Some BDC operators have attributed this development to reduced dollar liquidity in the retail segment of the foreign exchange market. This scarcity has forced buyers to source funds at higher rates, driving up the exchange rate.
Abuddullahi, a Lagos-based trader, commented: "The demand has gone up again, and supply is not sufficient. That is why the rate has crossed N1,400. I currently buy at N1,402 and sell at N1,428. For pounds, I buy at N1,850 and sell at N1,890. We are still cautious about the dollar, but from the market conditions, I expect the dollar to continue to rise."
Official Market Also Sees Naira Depreciation
In the official market, the naira fell by N2.92, or 0.22 percent, to N1,349.24 per dollar from the N1,346.32 per dollar it was traded last Friday. The currency also depreciated against other major currencies:
- Against the British Pound Sterling, it lost N6.62 to close at N1,821.87 per pound.
- Against the Euro, it declined by N6.80 to settle at N1,591.42 per euro.
This recent depreciation follows the CBN's move to slow the naira's gains at the official market and absorb approximately $190 million from the local currency market last week. The naira had been strengthening rapidly at the official window, but its rate declined over the last three trading sessions ending Friday.
Analysts Warn of Potential Market Strains
Financial analysts have warned that continuous naira rallies could prompt foreign investors to pull out of the fixed-income market. This scenario might involve selling investment securities and increasing demand for the US dollar, which could strain the market and accelerate dollar outflows from the Nigerian economy.
Despite limited foreign exchange interventions, the naira has remained relatively steady against the dollar. To stabilize conditions, the CBN, after a long period, has resumed buying dollars from the market.
Future Projections for the Naira
In a related development, Citibank has projected that the naira will weaken to between N1,650 and N1,700 in mid-2026. This forecast is based on expected pressure driven by lower crude oil prices and a new monetary easing cycle.
David Cowan, Citibank's African economist, stated in a note to clients: "Nigeria will begin a new monetary easing cycle next year." This prediction highlights ongoing concerns about the naira's stability and the broader economic implications of foreign exchange policies.
The widening gap between the official and parallel market exchange rates underscores the challenges facing Nigeria's currency management and the impact of CBN decisions on market dynamics.
