The Nigerian Naira has fallen to a six-day low, reaching its weakest since April 8, as pressures mount on the country’s foreign exchange market. The official exchange rate, which saw a slight recovery in mid-April, experienced a significant drop at the end of the week, reflecting ongoing economic vulnerabilities.
Rate Movements and Market Dynamics
On Wednesday, the exchange rate at the official window was bolstered to N1,072.4 per dollar, marking the lowest rate since January 2024, largely due to increased Central Bank sales to Bureau De Change (BDC) operators. However, this recovery was short-lived as the rate plummeted by 8.3% within just two days, closing at N1,230.61/$1. This decline has raised concerns about the potential for further depreciation as the week progressed.
Decline in Forex Turnover
April showed some improvement in liquidity with daily foreign exchange turnovers averaging $196 million and totaling $1.9 billion for the month. However, a significant downturn was noted on Friday, with the daily turnover dropping to $86 million, the lowest since mid-February. This reduction in liquidity is indicative of reduced trading activity and could signal deeper issues within the forex market.
Depleting External Reserves
A key focus of the week was the depletion of Nigeria’s external reserves, which has become a critical topic among market analysts and economists. The Central Bank reported that external reserves fell to $32.1 billion from $33.8 billion at the beginning of the month. Despite assurances from the Central Bank that the $1.7 billion drop was part of normal operations and not directly used for defending the Naira, the decrease has nonetheless affected market sentiment.
Parallel Market Reactions
The weakening of the official rate has been mirrored in the parallel market, where the dollar was sold for between N1,200 and N1,250 at week’s end, up from around N1,120 earlier. Market operators have noted increased demand, particularly as schools resumed after the Easter and Sallah breaks, putting additional pressure on forex supplies.
Forward-Looking Statements
Global Economic Indicators and Future Projections
The ongoing trends in US treasury yields suggest that interest rates may remain high through the end of the year, potentially strengthening the dollar further against the Naira. This scenario could pose additional challenges for Nigeria’s forex market, affecting everything from inflation rates to consumer prices.
Conclusion
As Nigeria grapples with these complex financial dynamics, the stability of the Naira remains uncertain. The interplay between external reserve levels, central bank policies, global economic trends, and domestic demand for dollars will continue to shape the country’s economic landscape. Stakeholders, from policymakers to investors, will need to monitor these developments closely as they unfold in the coming months.
