Traders believe the Naira will depreciate further at the end of the year as forex from Nigerians living abroad, who are home for the Xmas holidays, fell short than was originally expected.
Here is how a dealer interviewed by Reuters explained it;
“We see the naira depreciating against the dollar by the time more businesses resume operations next week after the festive season as dollar liquidity remains thin in the market,”
The exchange rate has contrary to expectations and trends in the festive period, failed to strengthen, depreciating to as low as N490 on Thursday.
Traders also inform Nairametrics that it is unlikely that the exchange rate will touch N500 before the new year even though supply is still relatively low. An exchange rate above N500 in the new year is however very likely as businesses reopen from the holidays.
Most currency traders had expected the Naira to strengthen this Xmas as diaspora Nigerians on holiday troop in to covert their hard currency into Naira. Unfortunately, this has not been the case.
We also believe there might be two reasons that explain why the dollar inflow from diaspora Nigerians on holiday has been low.
Firstly, the weaker exchange rate means they need not bring as much FX into the country as they typically did in time past. From an average exchange rate of about N268 to the dollar last Xmas, Nigerians in Diaspora can now exchange at N490 an 88% depreciation under a year.
Scarcity is another reason why dollar inflow might seem smaller than expected. Some diaspora Nigerians who brought in FX are thought to be reluctant to sell all their stash for fear of being unable to buy some back when they decide to return. It is also likely that some are holding on to forex rather than sell, in the hope that prices might depreciate further before they exit.
Nigeria is experiencing its worst economic crisis in over 20 years and has been in a recession since the second quarter of 2016. The CBN’s external reserve is currently at $25 billion down from over $40 billion in June 2014 when the oil price fall begun.