Lagos, Nigeria – November 7, 2024 – The naira has hit a new all-time low of N1681 per dollar at the official Investor and Exporter (I&E) window on Tuesday, November 6, 2024, marking a significant depreciation against the U.S. dollar. According to data from the FMDQ Exchange, this drop reflects the ongoing pressures on Nigeria’s foreign exchange market.
The naira’s fall comes after Monday’s close of N1676.9/$1, which had already marked a yearly high, underscoring the accelerating pace of its depreciation in recent months. This sharp decline highlights the persistent challenges facing Nigeria’s currency as the gap between official and parallel market rates continues to widen.
Key Exchange Rate Data
- Official Closing Rate: N1681/$1, up from N1676.9/$1 on Monday.
- Market Turnover: On Tuesday, turnover stood at $196.7 million, down from $218 million on Monday. For November, average daily turnover has dropped to $147 million, compared to $245 million in October.
- Parallel Market Rate: The naira traded at N1735/$1 in the parallel market, further illustrating the widening gap between official and unofficial exchange rates.
- External Reserves: Nigeria’s external reserves remain stable at $39.9 billion, according to the Central Bank of Nigeria (CBN), though these reserves have not prevented the naira from reaching record lows amid heightened demand for foreign exchange.
Factors Driving Naira Depreciation
The naira’s rapid decline can be attributed to multiple economic factors, including high demand for dollars and limited supply. As Nigeria continues to grapple with foreign exchange shortages, the Central Bank has faced mounting pressure to manage liquidity in the forex market, with limited success.
The country’s external reserves have shown some stability, but they have not been sufficient to prevent the currency from weakening in the face of elevated demand for dollars. Moreover, Nigeria’s fiscal deficit, combined with a decline in capital importation, has added to the strain on the naira.
Impact of U.S. Election on Naira
The timing of the naira’s depreciation coincides with the recent U.S. presidential election, where former President Donald Trump reclaimed office, defeating Vice President Kamala Harris. Trump’s return to the White House could have a mixed impact on Nigeria’s economy, with potential effects on the foreign exchange market.
- Energy Prices: Trump has historically advocated for lower global energy prices, which could negatively affect Nigeria’s oil revenues. A decline in crude oil prices would reduce Nigeria’s dollar inflows, exacerbating the forex market’s supply-demand imbalance.
- Interest Rates: Trump’s preference for lower interest rates may have a more positive impact on Nigeria. If lower rates boost global liquidity, this could increase foreign investments in Nigeria, potentially helping stabilize the naira as forex inflows rise.
Naira’s Depreciation in 2024
The naira has depreciated by approximately 45% against the U.S. dollar this year, making it one of the most significant currency declines globally in 2024. This continued depreciation reflects the supply and demand imbalance in the foreign exchange market, with demand for dollars consistently outstripping available supply.
The gap between official and parallel exchange rates is also putting additional pressure on the Central Bank of Nigeria, which is struggling to manage liquidity amid limited foreign exchange inflows. Efforts to stabilize the currency have been partially supported by increased diaspora remittances, which have risen to about $600 million per month. However, these remittances have yet to make a noticeable impact on the exchange rate, as other macroeconomic factors continue to weigh heavily on the market.
Broader Economic Challenges
In addition to the forex pressure, Nigeria’s economic challenges include a high fiscal deficit and declining capital inflows. The Dangote Refinery controversy remains another significant issue, as local marketers continue to import fuel, which adds further pressure on the naira and the broader economy.
As Nigeria navigates these multiple challenges, the trajectory of the naira remains uncertain. Unless there is a marked improvement in dollar inflows or a reduction in demand pressures, the currency may continue to face downward pressure in the months ahead.
Outlook
The naira’s depreciation is a reflection of broader economic pressures, with factors such as fluctuating global oil prices, domestic fiscal challenges, and the political climate in the U.S. all playing a role. As the Central Bank of Nigeria works to stabilize the currency, the persistence of these pressures suggests that the naira’s weakness may continue unless significant economic reforms or shifts in global economic conditions occur.
The foreign exchange market will remain a critical area to watch as Nigeria seeks to manage its economic challenges and navigate the ongoing volatility in the global financial landscape.
