The Nigerian naira has seen its value slide further, closing at N1,740/$1 in the parallel market last weekend, signaling a reversal of recent gains.
This depreciation continues to heighten concerns over exchange rate stability.
In contrast, the naira showed minor gains in the Nigerian Autonomous Foreign Exchange Market (NAFEM), as traders anticipate potential intervention from the Central Bank of Nigeria (CBN) to curb the depreciation.
According to Vanguard, FMDQ data indicated that the NAFEM rate improved slightly from N1,601.2 to N1,600 per dollar, reflecting a modest N1.2 gain.
Exchange dealers speaking to Financial Vanguard predict the naira may close October at N1,750/$1 and could reach N1,800/$1 by the end of 2024.
They noted that without intervention, the currency may erase gains made in early 2024 when it strengthened from N1,820/$1 in February to N1,240/$1 by March, though this trend reversed in April.
Over the past year, the naira has depreciated by 70.5% in the parallel market, reaching N1,705/$1 as of September 30, compared to an average of N1,000/$1 in September 2023.
Year-to-date, the naira dropped 16.7% from N1,490/$1 in January 2024. The official NAFEM rate experienced a 104% decline year-on-year, falling from N755.27/$1 in September 2023 to N1,540.78 in September 2024.
Experts attribute this sustained depreciation to foreign exchange shortages, despite differing views from fiscal and monetary authorities.
During a recent Monetary Policy Committee meeting, CBN Governor Yemi Cardoso highlighted that Federal Account Allocation Committee (FAAC) disbursements may be contributing to increased foreign exchange demand and exchange rate pressures.
He stated that the CBN would monitor future FAAC allocations to assess their impact on the foreign exchange market.
Finance Minister Wale Edun, however, emphasized supply issues, suggesting that Nigeria, as an oil-producing country, should address the scarcity by increasing oil production to boost dollar inflows.
In the face of ongoing currency challenges, some forex dealers have warned that the current exchange rate is approaching what they describe as the CBN’s “fear index.”
This situation, they argue, could prompt the central bank to intervene with emergency measures, such as bolstering liquidity to stabilize the naira. Dealers noted that since August 8, the CBN has reduced its direct FX market interventions, adopting a more conservative approach due to limited forex resources.
Dealers are hopeful about the CBN’s new Automated FX Trading model, set for a test run in November and a December rollout, aimed at enhancing transparency and curbing speculative activities. The CBN’s circular on October 2 outlined that the model would enable a market-driven exchange rate, potentially reducing distortions in the FX market.
Analysts warn that continued depreciation could see the naira rank among the worst-performing global currencies in 2024. The World Bank has already listed it as one of sub-Saharan Africa’s weakest performers, contrasting sharply with its strong appreciation in early 2024 when the Federal Government had praised its performance.
Local traders in the black market report severe dollar shortages as high demand from importers, unable to access the official market, spills over into parallel channels. Trader Mr. Liasu Moshood noted