Naira Depreciates Heavily over Huge FX Shortage
The naira depreciated heavily in the official window due to the huge gap between demand and supply. The exchange rate worsened by 8.25%, closing at ₦1,669.15 per US dollar at the official FX market on Wednesday, according to data from the FMDQ platform.
Exchange rate volatility worsened to a level rarely seen in the official window, signaling the US dollars have become quite scarce to meet FX users demand. Analysts maintained that without an adequate FX sales program in support of the naira across the markets, exchange rates will continue to worsen.
The Central Bank of Nigeria (CBN) abandoned retail Dutch Action FX sales in September after it was relaunched in August, 2024. On the other hand, the Apex Bank conducted forex market intervention at the parallel market by selling US dollars to Bureau de Change (BDC) operators.
“Look at exchange rate in the black market, you will see that FX sales to BDCs have little or no impacts at all.
“Why did Apex bank sold FX to informal currency traders? What’s the CBN expectation by continuing to toll that line”, analysts asked in a chat with MarketForces Africa.
FX sales to authorised dealer banks also have minimal, one off impacts in the official market, analysts said. MarketForces Africa reported that external reserves crossed $38 billion on the back of sustained FX inflows into the economy.
But analysts said the sizeable amount in the foreign reserves has been pledged against various deals by the government and on behalf of the nation. This makes it difficult for the CBN to have a well-planned FX sale to reduce the US dollar shortage in the official and informal currency markets.
In the parallel market, the Naira closed at ₦1,684 to the dollar. The current gap between official and black market rates settled at N15, creating huge FX spread opportunities for speculators.
Last week, the Nigerian autonomous FX rate traded within the range of N1,530-N1,699, closing at N1,540.78 in the spot market. As of Friday, the current gap between the NAFEM and the parallel market rate ended the week at 10%.
According to data from FMDQ, total NAFEM turnover increased by 71.7%, or US$615.5 million, week on week to close at US$677.2 million on Friday. Meanwhile, the NAFEM window recorded an inflow of US$365.8 million.
The CBN accounted for 17.8% of the total inflow, foreign portfolio investors (FPIs) contributed 3.3%, non-bank corporates 26.4%, exporters 40.3%, and others accounted for 12.3%. Elsewhere, oil prices rose by over 1% but came off session highs as a bearish U.S. inventory build offset support from escalating tensions in the Middle East.
At the time of the report, Brent prices had increased by 0.45% to $73.94, while WTI prices saw an increase of 0.60% to $70.26. #Naira Depreciates Heavily over Huge FX Shortage Naira Strengthens to N1,540 as Huge FX Auction Eased Volatility
