Naira Depreciates as FX Outflows Drag External Reserves
The naira registered a steep value decline in the foreign exchange (FX) market due to increased demand for the US dollar for economic activities in the country. The exchange rate worsened at the official FX market on Thursday, and at the same time, Nigerian gross external reserves maintained a downward trend, registering 10 consecutive outflows.
The balance in external reserves fell to $36.453 billion, down by $419 million, from $36.872 billion on August 7, 2024. Though the Central Bank said Nigeria recorded an all-time high FX inflows in July, the condition in the official currency market is anything but.
The FX scarcity challenge has kept the naira in a cage, swinging between N1500 and N1600 at best, with the authority claiming the local currency is grossly undervalued. In July, the naira depreciated by 6.9% in the Nigerian autonomous foreign exchange window at a rate of N1,608.70 per US dollar on the back of intermittent FX sales to authorised dealer banks.
“The problem is not the naira, there is a dislocation in Nigeria’s economic structure,” analysts told MarketForces Africa in a discussion on Thursday. Nigeria depends strongly on hydrocarbon sales to boost foreign reserves with intermittently favourable net flows from international trade.
After the FX reform, the gap between the official and parallel market exchange rates has collapsed. Lower FX spread has reduced speculation in the FX market, analysts told MarketForces Africa in a chat, citing the Central Bank of Nigeria’s (CBN) efforts to unify exchange rates.
According to data from the FMDQ platform, the naira depreciated by 2.74%, closing at ₦1,586.11 per US dollar. The weakening of the local currency was as results of higher demand for foreign currency which are not readily available in the currency market.
Some Nigerians, companies and government prefer conduction local transaction in foreign currency over growing doubts over the local currency store of value feature. Meanwhile, the naira held steady at ₦1,600 per US dollar in the parallel market on Thursday.
Demand for foreign currency at the informal currency market was relatively light for the Bureau de Change operators to accommodate. In the global commodities market, oil prices rebounded. MarketForces Africa reported that crude oil prices, which had previously erased most of their yearly gains, were rising due to weakened demand in China and concerns about the U.S. economy.
ICE Brent prices increased by 1.72% to reach $77.36, while US WTI prices rose by 1.75% to $73.19. Meanwhile, gold prices fell by 1.13% to $2,518.70 per ounce. #Naira Depreciates as FX Outflows Drag External Reserves NESG Hosts National Economic Dialogue 2024 on Strengthening Nigeria’s Economic Future
