The Nigerian naira depreciated further in the parallel market on Friday, closing at N1,500 per dollar as foreign exchange (FX) scarcity continues to pressure the local currency.
This represents a decline from Thursday’s rate of N1,495 per dollar, reflecting sustained volatility in the forex market.
The weekly trends in the parallel market show:
- Monday: N1,500/$1
- Tuesday: N1,502/$1
- Wednesday: N1,480/$1
- Thursday: N1,495/$1
- Friday: N1,500/$1
The week started with the naira trading at N1,500 per dollar, experiencing slight fluctuations midweek before returning to the same level by Friday. Market analysts attribute the naira’s depreciation to rising demand for dollars amidst limited supply, as businesses and individuals scramble for foreign exchange to meet obligations.
On the official market, data from the Central Bank of Nigeria (CBN) shows that the naira closed at N1,496 per dollar on Thursday, a slight depreciation from N1,495 per dollar recorded on Wednesday. The fluctuations in the official market further highlight the continued pressure on the local currency as demand outstrips supply.
Foreign Reserves and Other Currency Movements
The Central Bank of Nigeria’s (CBN) foreign reserves continued to decline, shedding $41.57 million between Monday and Wednesday. The decline in reserves has heightened concerns over the CBN’s ability to stabilize the forex market.
The British pound and euro also saw fluctuations in the parallel market, with the pound trading between N1,900 and N1,950, while the euro remained relatively stable around N1,550.
Market Reactions and Outlook
Market participants believe the naira’s recent depreciation is driven by:
- Dollar Demand: Increased demand for FX by businesses and importers.
- Declining Reserves: The continuous drop in foreign reserves limits the CBN’s intervention capacity.
- Speculation: Speculative activities by traders seeking to profit from naira fluctuations.
Analysts suggest that policy interventions, improved dollar liquidity, and investor confidence are necessary to stabilize the currency. However, with ongoing economic uncertainties, the outlook remains volatile.
More insights
Some analysts have emphasized that stabilizing the exchange rate should be a higher priority for policymakers than adjusting interest rates.
Samson Esemuede, Chief Investment Officer at Zrosk Investment Management Ltd, made the comments against the backdrop of the recent Monetary Policy Committee (MPC) meeting of the Central Bank of Nigeria (CBN), where the benchmark Monetary Policy Rate (MPR) was retained at 27.50%.
Also, the CEO of Financial Derivatives Company, Bismarck Rewane said Federal Government has spent approximately $8 billion in an attempt to stabilize the naira amid ongoing economic pressures.
