Forex traders said the local unit plummeted following an increased demand for the dollar and other hard currencies by parents seeking to pay school fees of wards studying overseas.
The naira had closed flat against the dollar at the official interbank window and at the parallel foreign exchange market last Tuesday, the first official trading day of the year. It closed at 305 to a dollar at the official window, the same rate it closed on the last working day of 2016, while the local currency closed at 490/dollar on the black market.
The naira had similarly closed at 490/dollar on Friday, the last official trading day of 2016. “In the week ahead, we expect pressure on the naira to linger, especially at the parallel market, as unmet demand from the official market continues to stoke imbalances,” United Capital had said in a research note to clients on Tuesday.
The local currency also closed flat at 490/dollar last Wednesday and Thursday at the parallel market, before recording loss on Friday. Economic and financial experts have expressed divergent views over the outlook of the naira this year.
The naira beat analysts’ expectation and closed the year 2016 at 490 against the dollar at the parallel market. Due to the persistent pressure on the naira, currency and financial analysts had predicted that the local currency would hit 500/dollar on or before the new year.
The naira has been under severe and continuous pressure as the scarcity of the US currency continues to create ripples in the financial markets and economy. The CBN had about two weeks ago sold about $1bn on the forward market to clear a backlog of dollar obligations in selected sectors.
Traders said the CBN told banks to prioritise airlines, manufacturing firms, petroleum products importers and agriculture, the sectors worst hit by the dollar shortage, in the auction.
The CBN has struggled to support the naira as the country’s external reserves continue to fall.
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