Lagos, Nigeria – The naira has plunged to an all-time low of N1,689.88 per dollar in the official foreign exchange (FX) market, marking a 0.5% depreciation from the previous day’s rate of N1,681.42. The drop in the naira comes amid a dramatic 77.42% fall in daily FX turnover, with trading activity plummeting to just $106.44 million, a stark contrast to $471.50 million recorded the day before.
Sharp Decline in FX Market Activity
The FMDQ Securities Exchange reported that the official exchange rate for the dollar settled at N1,689.88 by the close of trading on Tuesday. The market saw significant fluctuations, with intraday highs reaching N1,695 and lows at N1,631 per dollar, reflecting a volatile market environment. The steep drop in turnover, which is indicative of lower market liquidity, has raised concerns about the stability of the currency in the face of increased demand for foreign exchange.
Despite the volatility in the official market, the naira remained steady at N1,740 per dollar in the parallel market (black market), with little fluctuation observed. The divergence between the official and parallel market rates highlights the ongoing challenges facing Nigeria’s foreign exchange market, where the demand for dollars remains high, but liquidity is constrained.
Market Expectations and CBN Outlook
According to the Central Bank of Nigeria’s (CBN) Business Expectations Survey, firms anticipate further depreciation of the naira in the short term, particularly in November and the coming months. However, the survey also indicated a more optimistic outlook for the currency’s value over the next six months, with expectations for a potential appreciation in the medium term, as efforts to stabilize the economy take hold.
The CBN’s monetary policy and its interventions in the FX market will be critical in shaping the trajectory of the naira, with analysts closely watching for any new measures to boost liquidity and restore confidence in the currency.
Nigeria’s External Reserves Rise
In a more positive economic development, Nigeria’s external reserves have increased significantly, reaching $40.08 billion as of November 7, 2024. This represents a 21.4% rise from the reserves level of $33.02 billion at the start of the year. The increase in reserves is seen as a sign of strength and could provide the Central Bank of Nigeria with more room to manage the volatility in the FX market and support the naira over the coming months.
Outlook: Mixed Signals for the Naira
The market remains cautious amid a mix of short-term uncertainty and medium-term optimism. The sharp drop in FX turnover, combined with the naira’s steep depreciation, underscores the challenges facing the Nigerian economy, including inflationary pressures, external debt obligations, and foreign exchange scarcity. However, the rise in Nigeria’s external reserves provides some hope for future stability, with many expecting gradual improvements in the FX market as liquidity conditions tighten.
As the government and the CBN continue to implement policies aimed at stabilizing the economy, attention will turn to how these efforts translate into long-term currency stability and economic growth.
