The naira dropped against the United States dollar from 498 to 500 at the parallel market during the early trading hours on Monday, crossing the critical threshold currency analysts had predicted.
Foreign exchange traders linked the development to relative scarcity of the greenback in the forex market.
The local unit, however, reversed the loss during the intra-day trading and closed at 498/dollar.
The naira has been under persistent pressure as scarcity of the greenback continues to hit the market.
At the official market, the local unit closed at 305/dollar, the level it has traded at since August last year.
Meanwhile, the naira is expected to remain at 498/dollar at the parallel market as the Central Bank of Nigeria continues sales of the greenback to Bureau De Change operators.
The CBN had two weeks ago commenced sales of dollars to the BDC operators through Travelex, following a three-week break during the Yuletide season.
On Friday, the naira closed at 498/dollar at the black market, broadly unchanged from 497/dollar it recorded the previous weekend.
“Confidence is gradually returning to the forex market as a result of improved foreign exchange reserves, dollar sales by international money transfer agents and the central bank assurance it will continue to support the local currency,” one trader told Reuters.
Last Tuesday, the CBN said it would continue to provide hard currency, with priority given to manufacturing industries that need to import raw materials and spare parts.
Economic and financial analysts are slightly divided over the outlook for the naira this year.
Economic expert and Chief Executive Officer of Cocosheen Nigeria Limited, Mr. Henry Boyo, said the naira might crash to almost 1000/dollar at the parallel market this year if the CBN failed to review its monetary policy framework.
According to him, the policy framework is skewed against the local unit and it will be difficult for the naira to remain at the current rate.
A Nigeria-based investment bank and research advisory firm, Afrinvest West Africa Limited, predicted last Tuesday that the official exchange rate of the naira would tumble by about 31 per cent to 400/dollar before the end of this year.
In its 2017 economic outlook, the firm said the CBN might be forced by possible developments in the currency market to devalue the naira from the current 305/dollar to around 400/dollar.
“If you think about the monetary policy environment, we think that the CBN will be forced by the market to make a change. Currently, the naira is pegged at 305/dollar; we see it moving towards 400/dollar by the end of the year,” the Group Managing Director, Afrinvest, Mr. Ike Chioke, said at a press conference announcing the firm’s economic outlook.
Chioke stressed the need for key reforms in the currency market, petroleum downstream sector, power and other key sectors of the economy in order to put the ailing economy on the path of growth.
“If the CBN did take a plunge to make it really market-driven, we can see that even the 400/dollar rate may appreciate later on, bringing to something below 400/dollar,” the expert said.