Foreign currencies to Naira exchange rates have been very stable in the beginning of 2020 until mid-March. This is when global crude oil crises and COVID-19 pandemic begin to take effect. Let us take US Dollar to Naira parallel market rate as a guide and take a look at the chronological incidents when the rate saw peaks and bottoms.
Major Financial Matters that effected Dollar to Naira Rate in 2020
- Crude oid prices start to fall on March 2020 due to the conflict between Russia and Saudi Arabia. This brought the first peak for the foreign currency rates like US Dollar in 2020.
- On April 2020 as crude oil prices has hit an all-time bottom, Dollar to Naira rate continued to rise. Lockdowns on main cities of Nigeria also slowed down the economy.
- At the end of May Naira had significant value gains against Dollar as the liquidity on Investors and Exporters (I&E) window showed stability.
- Naira resumed losing value against dollar due to pandemic and oil prices from June till the end of August and the rate saw values as high as ₦480 on August, 18th.
- CBN announced that it will sell $10,000 to BDCs on last week of August 2020. CBN had stopped selling forex to operators since 27th of March due to upcoming COVID-19 lockdown. CBN’s warnings against sellers who raise the Dollar price also concerned BDC operators. As a result dollar rate saw a sharp fall to ₦440 level on 1st week of September.
- The rate resume rising as the markets did not see CBN’s intervention strong enough on September.
- Naira crashed against dollar at the end of November, Dollar to Naira rate seeing ₦500 on November, 30th in parallel market as the CBNs restriction window pressurizes demand on market.
- After the peak dollar rate closed the year at ₦470 on parallel market.
Overview of all Parallel Market Rates in 2020
*: Our AUD rate data covers only December 2020
When we take a closer look at the Parallel Market rates of all foreign currencies in 2020 we can highlight some important points:
- Currencies like Euro, Arab Emirates Dinar, and African currencies XAF and XOF had the greatest value gains against Naira throughout 2020. This may be due to the fact that US Dollar is traded with the highest volumes among other foreign currencies and resultantly regulated by CBN with top priority.
- Global western foreign currencies US Dollar, Euro and Pound Sterling have similar trends in terms of timing of rate changes as a group. Whereas African currencies XAF, XOF and ZAR form another group that have similar timing of trends to each other but differentiate from other currencies. We would deeply appreciate your professional comments regarding this issue.
Nigeria Inflation Rate 2020 Overview
Nigeria’s all items year-on-change inflation rate increased to 15.75% in December 2020, the highest rate reached since November 2017. Major factors that effected the climbing inflation rate for Nigeria in 2020:
- Food prices led the trail as food inflation index reached 19.56% in December 2020 according to Consumer Price Index report announced by the National Bureau of Statistics (NBS).
- Border closure with Benin continuing since August 2019 until announced by Nigeria on December 2020 that it is coming to an end has contributed to the high inflation rate especially with the food prices throughout the year. Border closure was a precaution to fight smuggling but hit economy by preventing food imports.
- Maize import restrictions started in July 2020 did not have the best timing as the Maize production in 2020 has settled on a very low annual level. These restrictions hit poultry production by raising the costs.