Photograph — Brookings Institute

A recent report has indicated a series of fluctuations in the activities of the Naira against the dollar in the NAFEX (I&E Window) trading floor. NAFEX which represents the Nigerian Autonomous Foreign Exchange is Nigeria’s official platform the forex trade.

On January 12, 2021, a slump in the price of the Naira against the dollar occurred when the Naira depreciated to N394/$1 from N393.33 recorded the previous day. However, the exchange rate at the parallel market (black market) remained stable at N475/$1 as it was the previous day.

According to the report, the fall was triggered by a rise in the country’s external reserves which rose to the highest level since July 2020. The tension felt at the forex market was linked to a surge in the demand for the dollar and a weak supply of it.

Nevertheless, activities on the trading floor as of  Wednesday, 13th of January 2021 shows that the Naira gained across markets as daily turnover falls to lowest since October, 2020. The Naira appreciated to N393.33 per dollar at the NAFEX (I&E Window) from N394 recorded the previous day.

The weak supply of dollar could equally be linked to the Central Bank of Nigeria’s (CBN) latest move to cut over N600 billion in Cash Reserve Requirement (CRR), creating a chaotic scarcity of funds and shortage of foreign exchange in the economy.

The latest CRR policy by the apex bank mandates banks to keep 27.5 percent of deposits with the CBN. However, the CBN recently debited the accounts of 23 commercial banks with N349.72 billion over Cash Reserve Ratio (CRR) breaches. According to the CBN, the move is to improve lending to the real sector, mop up liquidity and regulate the economy.

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