The naira depreciated to its lowest level in three weeks on the official market on Wednesday, June 5, 2024, closing at N1,488.60/$1. As reported by the FMDQ Securities Exchange, this represents a 0.78% drop from the previous day on the NAFEM window.
Volatile FX Market
The naira’s recent slump underscores the high volatility of the local currency. Over the past three weeks, it has experienced a roller-coaster trajectory. On May 27, the naira reached its highest value within this period, trading at N1,173.88/$1 after a 14.09% appreciation. However, these gains were short-lived as the currency quickly depreciated again, highlighting its instability amid economic pressures.
The foreign exchange (FX) turnover rate today was reported at $205.43 million, a 13.32% decrease compared to the previous day. This drop in the FX turnover rate and the naira’s depreciation may indicate a potential lack of confidence among traders and investors in the currency’s stability.
What You Should Know
As Nigeria grapples with various economic challenges, the naira’s depreciation complicates matters for policymakers and businesses. The currency’s instability can lead to increased costs for imported goods and services, potentially driving inflation higher.
The Central Bank of Nigeria (CBN) and the government have been trying to boost forex liquidity and stabilize the naira. The apex bank has maintained a tight monetary policy stance to manage inflation and stabilize the currency. Recently, the CBN announced that International Oil Companies (IOCs) can sell 50% of their repatriated export proceeds to authorized forex dealers. This directive aims to boost forex liquidity, mitigate volatility, and foster a more stable economic environment.
Despite these efforts, the persistent demand for foreign exchange and the resultant pressure on the naira continue to pose challenges. To further alleviate this pressure, President Bola Ahmed Tinubu plans to discontinue the payment of taxes and levies in foreign currency through an executive order. The order also mandates that all government levels and agencies prioritize procuring Made in Nigeria goods and services.
Fitch Ratings noted that ongoing foreign exchange (FX) reforms are necessary to boost foreign direct investment (FDI) and foreign portfolio investment (FPI). In a presentation on Monday, Gaimin Nonyane, Director of Sovereigns at Fitch, stated that increasing oil refining capacity will strengthen Nigeria’s current account, but reforms remain crucial in attracting foreign investments.
