The naira’s depreciation reached a new low last weekend, hitting ₦1,740 per dollar in the parallel market as pressure on Nigeria’s currency continues to intensify.
In contrast, the Nigerian Autonomous Foreign Exchange Market (NAFEM) saw a slight naira appreciation to ₦1,600 per dollar, with market observers speculating that the Central Bank of Nigeria (CBN) may step in soon to ease the strain.
According to FMDQ data, NAFEM’s rate appreciated slightly from ₦1,601.2 to ₦1,600 per dollar last Thursday.
However, dealers expect the naira to reach ₦1,750 per dollar by the end of October and potentially hit ₦1,800 by year-end if the current trajectory holds.
The currency has eroded much of its gains from earlier this year when it surged from ₦1,820 per dollar in February to ₦1,310 in March, only for depreciation to set in by April and continue unabated.
Comparing year-on-year data, the naira fell 70.5% in the parallel market, ending September at ₦1,705 per dollar from around ₦1,000 in September 2023. Year-to-date, the naira depreciated by 16.7%, down from ₦1,490 per dollar in January 2024.
In the official NAFEM sector, the naira depreciated 104% year-over-year, landing at ₦1,540.78 per dollar this September compared to ₦755.27 in September 2023, and fell by 9.9% since January 2024.
Analysts and dealers have attributed the naira’s ongoing slump to severe supply constraints.
Meanwhile, perspectives differ among fiscal and monetary policymakers on the currency’s challenges. At the latest Monetary Policy Committee (MPC) meeting, CBN Governor Yemi Cardoso linked currency pressure to Federal Accounts Allocation Committee (FAAC) disbursements, which reportedly elevate demand in the forex market.
He indicated that the CBN will closely monitor future FAAC allocations to assess their impact on the naira.
Conversely, Finance Minister Wale Edun, speaking in Washington, DC, during the recent World Bank Group meetings, attributed the problem to a shortage of forex supply rather than demand. He pointed out that Nigeria’s oil production could be ramped up to mitigate exchange rate pressure.
Dealers caution that the forex demand from large buyers who lack access to official market resources has driven them to the parallel market, further reducing liquidity.
They foresee a potential intervention from the CBN to alleviate the situation, perhaps through increased supply to forex dealers.
Additionally, the CBN is preparing to launch an Automated FX Trading model in December aimed at increasing transparency and controlling market distortions.
The naira’s depreciation now threatens to make it one of the worst-performing currencies globally this year. Although celebrated for its gains in March 2024, the recent reversal has drawn concern from both analysts and the World Bank, which recently ranked the naira among the weakest currencies in Sub-Saharan Africa.
In the black market, traders report mounting pressure as major importers and other entities seek dollars amid limited supply.
Some traders project that if the trend persists, the naira could close at ₦1,750 by the end of October and possibly reach ₦1,800 by December, fueled by heightened demand for festive season imports and year-end restocking.
