The Nigerian Naira continued its downward spiral in the parallel market, trading at a record low of ₦1,750/$ during midweek in Lagos, the nation’s economic hub.
This depreciation reflects heightened demand for the U.S. Dollar amidst a tight supply.
Data from the FMDQ Exchange revealed some reprieve in the official market, where the Naira gained ₦11.4, trading at ₦1,690/$ compared to Monday’s close.
However, liquidity remains an issue, with daily forex turnover dropping from $173.14 million on Monday to $128.59 million on Tuesday, underscoring the market’s volatility.
Challenges Persist in Nigeria’s Foreign Exchange Market
Despite global interest rate cuts and a recent spike in the Central Bank of Nigeria’s (CBN) foreign reserves to $40 billion — the highest in 32 months — the Naira remains under immense selling pressure. Since mid-2023, the currency has depreciated by over 70%, while the U.S. Dollar Index continues to show strength.
The parallel market has witnessed strong dollar demand, driven by factors such as foreign tuition fees, rising fuel import costs, upcoming holiday spending, and individuals hedging against Naira devaluation. Economic challenges like weak oil production, surging inflation, limited foreign investment, and tight monetary policies further compound the Naira’s woes.
Reforms Face Mixed Outcomes
President Bola Tinubu’s liberalisation of the foreign exchange market aimed to attract investment by floating the Naira. While this policy garnered international acclaim, it also triggered a surge in inflation, hitting a 30-year high and exacerbating the cost-of-living crisis.
Naira volatility has forced many businesses with dollar-denominated debts to adopt a more cautious approach. Although borrowing costs in Naira remain high, some are reducing their foreign liabilities, reflecting broader concerns about the economy’s direction.
Key Developments and Market Outlook
MTN Nigeria recently raised ₦75.18 billion in Series 11 and 12 Commercial Paper (CP) issuances under its ₦250 billion CP program, a sign of the corporate sector seeking liquidity amidst uncertainty.
Meanwhile, the U.S. Dollar Index dipped slightly, offering some global respite, but remains near its annual peak, signalling sustained demand for the greenback.
For the Naira, the road to stability hinges on improving forex inflows, enhancing local production, and addressing macroeconomic imbalances. Until these systemic issues are tackled, the currency is likely to face ongoing pressure in both the official and unofficial markets.
