- Traders blame Naira’s fall on contractor payments, dollar diversion, weak supply, and inflation.
- Parallel market rate slipped to N1,560/$1 in mid-August, widening the gap with the official window.
- Speculation and hoarding fuel volatility, though CBN inflows and reserves offer some support.
Currency traders have linked the recent depreciation of the naira at the parallel market to the supply challenges in the foreign exchange market and the huge demand for forex as a result of payments to contractors by the Federal Government agencies.
They also cited diversion of forex, especially from diaspora remittances, as one of the major causes of distortion in the foreign exchange market.
This is coming after the strong performance of the naira in the month of July, with the local currency trading at around N1,530/$1 at some point at the parallel market, as against the N1,580/$1 it started the month with.
That was then attributed to the excess supply of forex, the effectiveness of the Central Bank of Nigeria (CBN) in implementing its policies, enhanced fiscal buffers, investors’ confidence, a favorable balance of payments position, higher foreign inflows, positive market sentiments, and others.
The earlier uptick in the naira value indicated a positive market response to the CBN’s ongoing reforms and monetary tightening measures.
Limited access to foreign exchange has been one of the biggest challenges facing the Nigerian economy. This constraint often forced businesses and travelers to rely on the parallel market for their foreign exchange needs, creating arbitrage opportunities that fueled speculation and further destabilized the system.
In reaction to this, the CBN introduced a series of reforms to attract foreign capital, stabilize prices, and restore confidence in the exchange rate regime.
Reversal of gains
However, the naira appears to have reversed some of the gains recorded last month as it has, in recent times, depreciated against the US dollar at the parallel market, although it improved at the official market with minor fluctuations.
The naira closed at N1,560/$1 on Friday, August 15, 2025, at the parallel market, as against the N1,540/$1 it traded on July 31, 2025.
In contrast, the naira seems to have recorded some marginal gains at the official market with the local currency closing at N1,532.51 on Friday, August 15, 2025, as against the N1,533.55 that it traded on July 31, 2025. This has further widened the exchange rate gap to almost N30/$1.
This steep downturn, especially at the black market, reflects broader issues within the Nigerian economy, particularly in terms of forex liquidity, inflation, and a lot of cash in circulation, amongst other factors.
Trading dynamics on the day at the official market revealed the erratic nature of the forex market, with the naira hitting an intra-day high of N1,535/$1 before dipping to a low of N1,529.75/$1. Such fluctuations suggest a volatile session, where initial sell-offs were perhaps countered by subsequent buy-backs or corrective movements.
The naira has lost about 1.3% within the last two weeks at the parallel market, underscoring the substantial hurdles that Nigeria faces in stabilizing its currency.
Distortions in forex market
In an exclusive chat with Nairametrics, a senior official of the Association of Bureau De Change Operators of Nigeria (ABCON), who asked not to be named, admitted there have been distortions in the forex market but expressed confidence that stability would return soon.
He linked the pressure to government contractor payments and weak dollar supply. “It is under control. We noticed distortions, but relative stabilization is returning. Payments to contractors increase demand and add pressure on the naira, since most quickly convert proceeds into dollars,” he explained.
According to him, the market is also driven by speculation. “People don’t use the naira as a store of value anymore. Once they get paid, they convert to dollars. You have arbitrageurs, speculators, holders—some don’t do any other business, it’s just speculation,” he said.
On when normalcy might return, he noted: “Soon. I warn those hoarding and speculating to be circumspect, as the CBN always comes with surprises. Reserves have improved to over $39 billion, and sentiment is stronger.”
He also cited temporary supply disruptions in Abuja due to the three-day mourning period for late President Muhammadu Buhari.
Forex volatility and diversions
Explaining the continued volatility, the trader pointed to market players and unstable forex sources. “The behavior of players… even the sources that we get, is it stable? Once crude oil prices fall, the market becomes jittery. And much of the money meant for CBN liquidity is being diverted,” he said.
He also linked distortions to diaspora remittances being channeled outside official routes. “Most of the money from diaspora remittance, what volume comes into this country? Even abroad, it removes pressure on the local market. Because it’s not coming here, all the demand now shifts to the local market,” he noted.
On how these diversions occur, he explained: “Even on WhatsApp now, people are trading. You don’t need to bring the dollar into the country. You just give the person the naira here, and he gives you the dollar over there. This is diversion, and it’s done in volumes.”
The trader added that inflation, at nearly 30%, is another major driver of volatility. “Inflation erodes the value of the local currency. Many Nigerians don’t want to keep their store of value in naira,” he warned.
Panic buying reducing
Meanwhile, another BDC operator, Aminu Ardo, sounded a bit more positive, expressing cautious optimism with development in the forex market.
He attributed the small stability of the naira in the forex market recently, especially in the official window, to the release of dollars by the CBN to the market, thereby boosting supply marginally.
He added, ‘’Another thing is that many importers who rush to buy dollars have slowed down because of the new directives and monitoring. Also, there has been no panic-buying like before, and that helps the naira hold ground.
‘’If you notice, some foreign inflows have come in – like remittances and portfolio investors that came to test the ground again. All these are factors balance the market for now.’’
He, however, pointed out that this stability may not last long if supply does not continue, noting that once demand picks up, the naira may struggle again.
What you should know
The naira had on Friday, August 26, ended the week on a slightly weaker note in the parallel market, trading at N1,560/$1.
- This is against N1,555/$1 recorded on Thursday and Wednesday, according to data obtained from market sources by Nairametrics. Meanwhile, in July, BDC operators attributed the good performance of the naira and the relative stability of the forex market in July to the excess dollar supply and the activities of the security agencies against forex speculators and hoarders.
Nairametrics, in its recent analysis, had reported that the naira is enjoying its most stable run against the dollar at the official window.
- Before the latest decline, the local currency had been experiencing its longest stretch of stability this year, holding within a narrow band of N1,520–N1,537 per dollar for almost eight weeks, from mid-June to early August.
- Market data tracked by Nairametrics shows the exchange rate has moved less than N2–N3 on most trading days in this period, a contrast to the double-digit jumps seen in earlier months.
This stability is particularly notable given the summer holiday season, when demand for foreign exchange typically spikes as Nigerians travel abroad for vacations, education, and shopping.
