*Photo used for illustrative purpose*
The naira has continued its abysmal run as it has dropped against the United States dollar to 499 on Tuesday, from 498 on Monday.
According to Reuters, this is as a result of the lingering scarcity of the greenback in the market. The local currency had hit 500/ dollar on Friday, from 498/dollar it had recorded last Thursday. This came about one week after the naira touched 500/dollar briefly and reserved back to 498/dollar.
The local currency had been stable against the greenback for about three weeks. During the early hours trading on Monday, the naira traded flat at 500/dollar on the black market before closing at 498/dollar.
The external reserves rose to one-year high at $28.2bn on February 2, the Central Bank of Nigeria data showed on Monday. On the official market, it was at 305.25/dollar, where it has been trading since last August.
The CBN had last week sold $660m in three and five-month currency forwards at an auction aimed at clearing a backlog of dollar demand. But traders said it was not enough to satisfy the market.
“Despite rising FX reserves, it’s the amount of the 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,” Reuters reported, quoting the Head of Africa Research at Standard Chartered Bank, Razia Khan.
“Supply of FX matters more than any other factor,” she added. Traders said the CBN had been selling dollars on the official market to support the naira, but dollar shortages were causing the local currency to weaken on the black market.
The naira lost a third of its official value against the dollar in 2016 after the CBN scrapped its peg for the currency, allowing the naira to float on the interbank market, in a bid to alleviate dollar shortages.
On the Bureau de Change segment, the naira closed at N399/dollar, while the pound sterling and euro closed at N617 and N527, respectively.
Traders said that the scarcity of the greenback was far from being over. The forex exchange reserves have gained more than $2bn in 2017, rising from $25.8bn on December 30, 2016 to $28.2bn on February 2, 2017.
Economic and financial experts are divided over the outlook for the naira this year.