The local currency had closed at N354 against the greenback on Tuesday.
The naira has been experiencing high volatility since the beginning of the week, as supply gap at the interbank forex market continues to weigh on the parallel market.
The naira, which closed at 348 against the greenback at the parallel market on Friday, dropped to 351 on Monday before plunging further to 354 on Tuesday.
Foreign exchange dealers, who linked the development to dollar scarcity, said inadequate liquidity in the forex market was making the naira to depreciate very fast.
Currency analysts and experts said there was a need for the Central Bank of Nigeria to address liquidity issue at the interbank market in order to resolve the matter.
“It all comes back to liquidity, that is what drives the market, the Chief Executive Officer, Nigeria, Renaissance Capital, a United Kingdom-based investment bank, Mr. Temi Popoola, said.
Corroborating this view, a currency analyst at Ecobank Nigeria, Mr. Kunle Ezun, said, “It is basically one thing – the supply side; activities are still currently low at the interbank market
“Nothing much is really happening on the supply side of the market. Liquidity issue is still there. We actually felt that foreign investors should have been coming in by now.”
The President, Association of Bureau De Change Operators, Aminu Gwadabe, said the volatility at the parallel market this week could be traced to the activities of currency speculators.
The naira had recorded relative stability against the dollar throughout last week, trading between 246 and 248 at the interbank market.
The ABCON president, however, said supply was still an issue, noting that currency speculators were taking advantage of the supply gap at the interbank market to fuel spike in the exchange rate at the parallel market.
Gwadabe explained, “A huge amount of demand is going to the parallel market. People can’t even get $1,000 for their Personal Travel Allowance; banks said they didn’t have. I think there is a need for the CBN to do something about the forex distribution channel. I believe it is only the BDCs that can do the distribution effectively.
“As much as possible, we want to be patriotic and work with the regulators as BDC operators. The parallel market operators are happy with this spike. It is high time the CBN checkmated this spike. The BDCs can be empowered by giving them access to the Diaspora remittances or the CBN window.”
Gwadabe said the significant influx of illegal forex operators from neighbouring countries was further compounding the exchange rate spike problem.
RenCap’s Popoola said liquidity could come to the interbank market if certain steps were taken by the government.
He stated, “Liquidity currently comes from only one source, the CBN. We can also get liquidity into the market through remittances, portfolio investors and foreign direct Investment. How do we do it? The answer is the price level. There is a price level that will drive liquidity into the market.”
However, he added that the forex market was still anticipating what would come out of the maturity of the first future transactions after the introduction of the new flexible forex regime.
“About $700m is due next week; everybody is looking forward to the maturity of the first forward transactions. So, the market appears to be in a wait-and-see mode. So, let us see what happens next week,” Popoola said.
The naira closed at 283.75 against the dollar at the interbank market on Wednesday. The external reserves were $26.3bn on July 12.
“I think the foreign investors are not comfortable with naira at around 280/dollar,” Ezun noted.