The Nigerian Naira,yesterday dropped to a record low of N327 against the US Dollar in the parallel market due to a shortage of foreign exchange in the forex market for a second time this week following its drop to N318 on Wednesday.
The persistent fall happened days after the inter-bank lending rate rose to two percent from one percent on Monday, as a result of the Central Bank of Nigeria’s directive to commercial banks asking them to fund their Naira accounts ahead of its intervention in the forex market.
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The currency has been under pressure since the global prices of oil fell in 2014. This is mostly because the country is dependent on oil for about 75 percent of its revenue and 90 percent of its foreign earnings. In order to save the currency, the CBN introduced several stringent monetary policies, which has failed to strengthen it.
However, economic experts have called for devaluation in order to save the currency from falling further as opposed to these monetary policies, but the government has been adamant. The president of Nigeria, President Muhammadu Buhari, on several occasions, has said that the country’s currency would only be devalued if he is convinced it would save the value of the Naira. This statement by the president only served to expose the fact that the CBN was not as independent as it should be.
Recently, the head of the International Monetary Fund, Christine Lagarde, said that the country needs a “sensible” FX policy in place in order to save the naira. A former governor of the CBN, Sanusi Lamido, also criticised the president of Nigeria, for endorsing the current forex policy.
Looking at all the policies being implemented by the CBN to save the currency, it may be losing this battle and, if the apex bank is not cautious, the Naira could fall as low as N400 to one US dollar.